16 June 2011
Changes in corporate registration procedures in Ukraine

Ukraine is in the process of implementation of a number of changes generally aimed to simplify basic corporate procedures such as incorporation of a new company, changing company’s statutory documents, liquidation etc. Although most of the changes are technical in nature, the effects on overall corporate environment might be rather significant. 

Charter capital (changes effective from 7 June 2011)

The requirement establishing minimum statutory amount of the charter capital of limited liability company (LLC) has been cancelled. Currently, the charter of an LLC can provide for any amount of its charter capital.

In addition, it is no longer required to ensure formation of at least 50% of the charter capital of an LLC before its state registration. Instead, in order to incentivize timely formation of the charter capital a new provision has been introduced to the effect that, in case of failure of a founder to make its contribution in full within one year from the state registration of the company, the founder can be expulsed from the company by other participants.

We expect these changes should expedite the setting up procedure.

Notary costs (changes effective from 7 June 2011)

Although there is some ambiguity in the new wording of the law, our reading is that for many corporate actions involving state registrar (such as change of company’s participants, change of director, amendments to the charter, etc), simple copies of the underlying documents can be submitted instead of originals or notarized copies as before. This extends to the documents formalizing transfers of equity, essentially meaning that there is no longer a requirement to notarize agreements on sale and purchase of equity shares in LLC, which used to be a significant cost factor.

However, it has come to our attention that there is no uniform approach to the above changes among local registrars and notaries who tend to interpret and apply the new law in a conservative way thus refusing many of the new benefits. Therefore, this matter should be closely monitored for any clarifications by state authorities and potential changes to their position. In the meantime, difficulties in submission of the documents under the new procedure are highly likely.

Should the state authorities interpret the new law in a liberal way as we summarized above, this will clearly reduce registration (notary) costs at incorporation and equity transfer stages. At the same time, we do not exclude that the possibility to submit simple copies of the underlying documents may be abused in the situations involving corporate conflicts etc.

LLC participants (changes effective from 11 June 2011)

The maximum number of participants of LLC will be increased from 10 to 100. Together with the above-mentioned changes, we expect this should result in more use of LLC which is currently one of the most popular legal forms inUkraine.

Model charter (changes will become effective from 28 August 2011)

This novelty will allow incorporation of the companies with reference to the model charter, which is yet to be adopted by the Government. In our view, this will result only in insignificant simplification of the incorporation stage as sophisticated businesses would still prefer to have the

charter tailored for their needs. At the same time, one of the other theoretical benefits of the use of the model charter could be a lesser risk of manipulations in corporate conflicts.

Summary

The above changes can mostly be regarded as a step forward to simplification of the basic corporate procedures. At the same time, there is a concern that their implementation will be problematic, at least at this early stage. Also, some of the changes are potentially sensitive in corporate conflict situations.

More changes of similar nature are expected in the nearest future, including in company liquidation procedures.

By Oleg Boichuk, Counsel, and Natalia Spiridonova, Associate

Practices