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Ukraine significantly improves corporate governance in LLCs
Avellum, Kyiv, Ukraine,
Mon, March 26, 2018
On 6 February 2018, the Ukrainian Parliament adopted Law of Ukraine “On Limited Liability and Additional Liability Companies” No. 2275-VIII (“Law”). Most of its provisions will become effective on 17 June 2018.
AVELLUM’s lawyers actively participated in the preparation and public discussion of the draft Law.
The Law aims to ensure an up-to-date and comprehensive regulation of the most common form of doing business in Ukraine – limited liability companies (“LLC”). Particularly, the Law adheres to the balance of flexibility of legal regulation and necessary minority protection mechanisms. For instance, an LLC may deviate from some requirements of the Law, if 100% of the LLC’s participants vote in favour of such decision.
Below we outline the key amendments to the regulation of the LLC’s operation introduced by the Law.
1. Expanding options for formation and increase of LLC’s charter capital
The Law permits the increase of the LLC’s charter capital by debt-to-equity swap. Additionally, from now on, the LLC may increase its charter capital through additional contributions from both the LLC’s participants and third parties.
Moreover, the Law introduces financial assistance rules for LLCs, which prevent the LLC from lending money for the payment of the participant’s contribution to the charter capital or grant any suretyships securing loans provided by third parties for such purposes.
2. Simplification of procedure for becoming LLC’s participant
The Law abolishes the requirement to name the participants in the LLC’s charter. Therefore, a transfer of a participatory interest in the LLC will not require to change its charter, as well as to call a general participants’ meeting.
From now on, the LLC’s charter may also disapply a pre-emptive right of a participant to purchase the other participant’s participatory interest, which is being sold to a third party.
3. Cancellation of restriction on maximum number of LLC’s participants
The Law cancels the limit on the number of the LLC’s participants (currently – 100 persons) together with the need to reorganise the LLC into a joint stock company if such limit is exceeded.
4. Enhancement of LLC’s corporate governance
The Law re-confirms the recently introduced regulation of corporate (shareholders’) agreements between the LLC’s participants. For more information on this recent legislative development, please follow the link.
Additionally, the LLC may establish a supervisory board, whose competence must be regulated by the charter.
5. Optimisation of procedure for convocation and holding of GPM
The Law adds flexibility to the procedure for calling and holding of a general participants’ meeting (“GPM”).
The LLC may hold a GPM via videoconference and its participants may vote at the GPM by absentee ballots. The Law also allows the GPM to adopt resolutions by polling through electronic communication.
Additionally, the Law cancels the concept of the GPM quorum and establishes that resolutions must be adopted by the majority (simple or qualified, depending on the matter) of the total number of the LLC’s participants.
6. Introduction of concepts of material and interested party transactions for LLC
The Law introduces a special procedure for entering into material transactions by the LLC and envisages the possibility of setting out a special procedure in the charter for entering into interested party transactions by the LLC.
The Law provides for a one-year transitional period for existing LLCs to make their charters complaint.