Reminder to the business: the Ukrainian Law on Limited Liability Companies has gained effect
The Law of Ukraine No. 4666 “On Limited Liability Companies and Additional Liability Companies” has officially gained effect on July 17. Having passed the Verkhovna Rada three months ago, the bill changes incorporation rules for limited liability companies (LLC, or sometimes transliterated from Ukrainian as ‘TOV’ – translator’s note) and establishes new requirements for Articles of Association. Therefore, the business has to ensure they are prepared.
Let us recap, what does Law No. 4666 actually change?
The new law prescribes more freedom for companies as far as their corporate governance mechanisms are concerned. For instance, companies can now establish the structure of internal departments independently and chose methods to control the activities of officials, executive bodies, etc. The only requirement is that the governance mechanisms selected may not conflict with other provisions of the Law.
That said, it has become possible to conclude an incorporation agreement between founders, and the signature genuineness now should be notarized in the first draft of the Articles of Association.
Perhaps one of the most important changes of the Law No. 4666 is the new opportunity for participants to enter corporate contracts. Such corporate contracts include rights and liabilities of shareholders and methods of their performance. For example, there may be agreements that parties will not alienate their share before a particular event. A convenient solution to avoid controversial or deadlock situations. A corporate contract, by the way, is fully confidential and cannot be disclosed. This way, those planning an investment in a company need to be ready for it.
Another innovation changes the rules of transactions between companies. More specifically, the Law requires transactions to be approved by all parties if the transaction amount exceeds 50% of the value of net assets belonging to the company as at the previous quarter. To meet such a requirement, one has to check the balance and Articles of Association of own counterparties on a quarterly basis. Then, follow the preparations for legal proceedings since even if an unfair agent is found among counterparties, there is a possibility to appeal against the charges.
The Law No. 4666 provides for a strict regulation when it comes to an untimely contribution in the share capital. If a delay occurs for the first time, the participant will receive a warning in writing. However, if delays remain to be a problem, the company must gather a general shareholder meeting to find a solution.
Changes have affected the withdrawal conditions for participants holding more than 50% of shares. They now have to obtain a consent of other shareholders.
Changes in Articles of Association in pursuance of the Law No. 4666
There is one noteworthy aspect here. The new law does not specify the exact timeframes for companies to make amendments to their Articles of Association. At the same time, the document mentions that certain paragraphs in Articles of Associations prepared in pursuance of older laws shall be only valid for the closest year.
In this situation, companies are recommended one thing: to change their Articles of Association as soon as possible. If not changed, the board and shareholders may face conflicts and disputes as to their new responsibilities. That said, further inspections may pave the way to new demands from the state, which can eventually result in lawsuits and unnecessary costs.
This post is also available in: Russian