Three years ago, in June 2018, the Law of Ukraine “On Limited and Additional Liability Companies” (the “LLC Law”) became effective. It introduced a lot of novelties to ease doing business in Ukraine. This note aims to recap these novelties briefly.
The LLC Law permitted shareholders in limited liability companies (the “LLCs”):
- to establish supervisory boards
- to increase charter capitals through contributions from third parties and debt-to-equity swaps
- to create special procedures for material and related party transactions
- to enter into shareholders’ agreements (the “SHA”)
Nowadays, LLC shareholders may use such well-known instruments as the right of first offer (ROFO), the right of first refusal (ROFR), tag along, drag along, deadlock resolution mechanisms, voting arrangements, option agreements, etc.
Today an increasing number of investors opt for the SHA to govern their internal relations and increase the company`s sustainability. We see high demand for the SHAs and prepared more than a dozen SHAs for our clients. The SHAs are widely used in all industries both by local and foreign investors.
Ukrainian corporate legislation continues to improve. The managing partner of AVELLUM, Mykola Stetsenko, has been actively involved in drafting the new law on the Joint Stock Companies and further improvements to the LLC Law. These upcoming changes will clarify some existing inconsistencies in the LLC Law and will permit the shares in LLCs to be registered in the accounting system of the depositary system in Ukraine (as opposed to the public register of the companies) which is a very technologically advanced system that provides greater protection and many additional functions to the companies and shareholders.
Undoubtedly, all of this fully affects the investment attractiveness of Ukraine.