From public to private
"The disposition level stipulated in the Law on Limited Liability Companies allows the establishment of corporate management that meets the needs of a specific company"ANNA BABICH, PARTNER AT AEQUO, NOTES
— Assess the impact of the new Law of Ukraine "On Limited and Additional Liability Companies" on the Ukrainian business sector.
— It is difficult to overestimate the importance of the Law of Ukraine "On Limited and Additional Liability Companies" (the Law on LLC). The Law has reduced a list of mandatory provisions in Articles of Association and eliminated the need to restate Articles of Association in the event of a change in a company’s membership, the amount of authorized capital, the types of activities carried out by the company, and redistribution of shares between company members. The Law on LLC also allowed the elimination of blocking of these changes by minority members, since their signing of the Articles of Association is no longer required.
The Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (USR) will be used as intended as in all European states.
The disposition level established in the Law on Limited Liability Companies allows members and companies to establish corporate management that meets the needs of a specific company.
— What fundamental changes were introduced by the Law on LLC in the Ukrainian legal field?
— We can highlight the following among the most important changes in the Law on LLC: the USR will be the single source of information about company members, amount of authorized capital and shares held by members; change of LLC member is based on application and documents submitted by a new member irrespective of the will of other members without execution of the minutes of the general meeting on approval of new LLC membership and the restated Articles of Association.
The Law on LLC also amended the documents which are the basis for state registration of a change in membership: the share acceptance and transfer certificate was replaced by the share purchase agreement, signatures on which may be notarized without significant expenses for the parties. This novelty solved an issue of information disclosure on confidential terms of transaction and relieved the parties from the necessity to execute an additional technical agreement on purchase and sale on three pages in addition to the main purchase and sale agreement, which the parties do not want to disclose to the state registrar.
— What priority steps should be taken by a LLC to bring its activities into compliance with the new legislative act?
— Primarily, company members should determine the corporate government structure in a LLC: resolve the issue of expediency to create a supervisory board, establish a sole or collective executive body.
Furthermore, they need to determine the list of provisions which will be governed by the Articles of Association in another way than stipulated in the Law on LLC, namely the issue here is about limiting the powers of supervisory and executive bodies, setting an individual quorum (we remind the reader that the Law on LLC does not stipulate default quorum, but it may be provided in the Articles of Association of a LLC), resolution of procedural issues for convening general meeting of members of a LLC (terms and procedure for notification of members on convening the meeting), procedure for share transfer into pledge, presence or absence of preemptive right of members to purchase the share, setting restrictions on interested party transactions, establishing individual criteria for major transactions, and the terms for payment of dividend.
After approval of the restated Articles of Association it may be necessary to bring the internal company regulations into compliance with the new Articles of Association.
— What difficulties may arise in practice? What provisions of the new Law on LLC are discussed most actively?
— The list of mandatory provisions of Articles of Association is probably discussed the most actively, as well as the absence of necessity to specify the company membership, types of activities, amount of authorized capital of LLC and share distribution among the LLC’s members in the Articles of Association, and new procedure for increasing the authorized capital of a LLC.
There are currently many companies that prefer to reserve these provisions in the Articles of Association in the event that in the future careless officials of state authorities will require these provisions in the company's Articles of Association. So, when bringing the Articles of Association into compliance with requirements of the Law on LLC they limit this process to "cosmetic" changes.
Some companies continue to approve changes in LLC membership at the general meeting and, in the same old way, perform the minutes of the general meeting on approval of new LLC membership and distribution of shares between members.
Certain registrars still request such minutes in addition to the share acceptance and transfer certificate, since this document is still provided for in the electronic system of USR.
There are also known cases when banks, on crediting additional contributions to the authorized capital of a LLC from a foreign member required, and still require provision, of new Articles of Association with new amount of authorized capital or registration act for increase in authorized capital in the USR until the additional contribution is actually made, and do not have the faintest idea of the new procedure on increasing the authorized capital according to the Law on LLC.
The absence of a single approach to execution of documents in accordance with the Law on LLC can be also explained by the absence of comprehensive clarification from the Ministry of Justice of Ukraine on application of the provisions of the Law on LLC and amendments to the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations” provided for by the transitional provisions of the Law on LLC.
— Were some imperfect provisions in the new Law on LLC discovered that required amendments during approval this law?
— One hard-hitting provision of the Law on LLC requiring amendment is the procedure for approval of major transactions concluded by the company.
Practice in the application of Article 44 of the Law on LLC showed that reference to net asset value significantly complicates the procedure on conclusion of a transaction. It seems appropriate to delete part 2 of Article 44 of the Law on LLC and to provide companies with the ability to set criteria independently for their approval at the general meeting of shareholders.
— What are future prospects like for improving corporate legislation in Ukraine in terms of LLC?
— Today, we should acknowledge the fact that the material and technical base (electronic system of USR) has not yet been brought into compliance with provisions of the Law on LLC. Therefore, for the purposes of unification of law-enforcement practice, it is necessary to bring the USR system into compliance with the new Law on LLC, and the Ministry of Justice should provide clarification on the features of its application.