The Law on LLCs and ALCs entered into force

Law of Ukraine “On Limited Liability and Additional Liability Companies” dated 06.02.2018 No. 2275-VIII

The Law introduces the following major changes in regulation of LLCs:

1.    The charter must contain the following information: company’s name, governing bodies, procedure for joining and withdrawing from the company. It is no longer required to specify the address, participants, the amount of the authorized capital, etc. Moreover, a considerable number of matters may be regulated in the company charter differently from the Law.

2.    The Law regulates the issues regarding corporate agreements. Under such agreements, the company’s participants undertake to exercise their rights and powers in a certain manner, or to refrain from exercising the same. Such agreements are gratuitous, confidential, and are to be made in writing.

A participant – party to a corporate agreement may issue an irrevocable power of attorney to perform its obligations under the agreement.

3.    Participants must make their contributions to the authorized capital within 6 months (unless otherwise provided for by the charter). The Law prescribes a procedure to follow in case the contributions are not made in full. Possible consequences of failing to make contributions in full include expulsion of the participant, reduction of the authorized capital, reallocation of the unpaid share between the participants, liquidation of the company.

Any increase of the authorized capital is allowed only after all contributions have been paid in full.

4.    Dividends are paid from net profit to those participants of the company that were company participants as of the date of the decision on payment of dividends, in proportion to their shares. It is allowed to pay dividends in a non-monetary form (if the participants decide so) and for any period dividable into quarters.

The issue on payment of dividends must be included in the agenda of the annual general meeting of participants.

5.    No decision on payment of dividends may be taken:

1)    If the company has not settled with its participants following termination of their participation in the company.

2)    If the company’s property does not suffice to satisfy creditors’ claims or will not suffice as a consequence making the decision on payment of dividends.

3)    If such dividends are to be paid to a participant who has not paid its contribution in full.

6.    Regarding the general meeting of participants:

1)    The general meeting may be held by interviewing, absentee voting (the participant’s signature must be notarized), via videoconferencing.

2)    For the companies with a sole participant, holding a general meeting does not require compliance with the requirements regarding the procedure for convening, notifying of, holding the meeting (without appointing a chairperson of the meeting), voting (no filling in bulletins required).

7.    Regarding the supervisory board:

1)    The supervisory board may be set up and formed of independent members.

2)    The supervisory board may be authorized to elect and remove the executive body, to set remuneration for the participants of such body.

8.    Regarding officials:

1)    The authority of a director or a chairperson of the board of directors may be terminated only through election of a new or acting director or chairperson of the board.

2)    Upon election, the officials must notify the company of their affiliated entities.

3)    Within 2 days from receipt of information about any existing conflict of interests, the executive body must notify all company participants thereof. Failure to comply with this requirement constitutes one of the grounds for termination of an agreement (contract) with the official concerned, without compensation.

4)    In case of termination of an official’s powers, the relevant agreement with such official is deemed to be terminated as well.

5)    No official is allowed to be an individual entrepreneur, director or participant of other companies operating in the same area of activities (non-compete clause), without consent of the general meeting.

9.    The Law defines a related party transaction, sets the procedure for, and specifies the consequences of approval of major transactions and related party transactions if executed/performed with a violation of the procedure for obtaining prior consent.

10. In case of a participant’s death or liquidation, such participant’s share will be transferred to its heir or legal successor without consent of other participants.

Participant holding a share that exceeds 50% of the authorized capital may withdraw from the company only with the consent of all other participants, while minor shareholders do not require such consent to withdraw.

The Law entered into force on 17 June 2018 (except part 2 Art. 23 described in subpara. 2 para. 10 hereof, which becomes effective on 17 June 2019).

IMPORTANT:

A.   On 17 June 2019, the provisions of LLCs’ and ALCs’ charters that do not comply with the Law will become null and void.

B.    During one year from the effective date of the Law, LLCs and ALCs will be exempt from state duty for registration of amendments made to their charters to comply with the Law.

C.    Provisions of the Law of Ukraine “On Business Entities” that regulate LLCs and ALCs shall no longer apply. The Civil Code of Ukraine is amended, in particular, Articles 140-151 are removed.