Doing business in Ukraine

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„Doing business” in Ukraine may sound not very attractive regarding the fact that according to the World Bank Report 2017 Ukraine ranks #80 on Ease of Doing  Business and #20 on the Ease of Starting Business[1]. The laws regulating starting and doing business in Ukraine are sometimes complicated and the procedure in general is quite bureaucratic. But at the same time there are several reasons to attract business such as rich natural resources, educated people and convenient geographic position.

Different options for doing business are availible in Ukraine. Foreign individuals and companies (legal entities), individuals without citizenship may establish company in Ukraine as well as Ukrainian legal entities and individuals. Business entities in Ukraine can be established in the following forms: joint stock company, limited liability company, additional liability company, general partnership and limited partnership[2].

Considering small and middle business the most popular form is limited liability company (LLC). It is legal entity in which the share capital is  divided into shares and determined by the charter. The liability of shareholders is limited to the amount of their investments in the share capital. It should be stressed that there is no minimum amount of share capital according to Ukrainian legislation resulted in a complete freedom of choice for shareholders. The share capital should be paid by the members of the LLC before the end of the first year from the date of the state registration of the company.

LLC can be established by minimum 1 to maximum 100 shareholders. The shareholders have the right to sell or otherwise withdraw their shares (part of it) to one or several shareholders of this LLC. It is also permitted in favour of third parties but the shareholders enjoy the preemptive right to purchase the share (its part) proportionally to the size of their shares, if the charter of the LLC or arrangement between the participants does not establish another procedure.

LLC is governed by General Meeting of Shareholders which consists of the shareholders of the LLC or their appointed representatives. They have the number of votes, proportional to their shares in the share capital. The Quorum requires the presence of shareholders having at least 50% of all votes.

The executive body of LLC is Board of Directors or single Director. It is responsible for all issues of LLC’s activity, with the exception of those that belong to the exclusive competence of General Meeting of Shareholders. The controlling function over Board of Directors (or Director) performs Audit Commission which is formed by General Meeting of Shareholders among shareholders of LLC in amount no less than 3 members.

Considering large business the most suitable form is joint stock company (JSC). It is legal entity with share capital, divided by a specified number of shares of equal nominal value. Shareholders are responsible for the obligations of the company only within the limits of their shares and are not personally liable for company’s obligations[3].

Shares exist exclusively in non-documentary form. JSC may be established either in the form of “public” (when its shares are held privately or publicly at stock exchange) or “private” (when its shares are traded only privately). The issued shares of JSC’s (private and public) must be registered with the National Securities and Stock Market.

The minimum amount of share capital requires no less than 2 500 minimum salaries based on the rate applicable at the moment of company’s establishment (the minimum salary at July 2017 is 3 200 UAH).

JSC must have minimum 1 shareholder who can obtain all shares of the company, and there is no requirement for maximum amount. The governance of JSC is performed by the following bodies: General Meeting of Shareholders, Supervisory Board and Executive Body.

General Meeting of Shareholders is the highest body of JSC and may resolve any issues of the company. The Supervisory Board of a JSC is a body that protects the rights of the shareholders of the company, and within the limits of its competence controls and regulates the activities of the Executive Body. The Executive Body of JSC manages the current activities of the company.

To make a conclusion, it should be pointed out that complex changes are being carried out in Ukraine to make it more attractive and convenient for business. In particular, on 11 July, 2017, the Council of the European Union adopted a decision to conclude the Association Agreement with Ukraine on behalf of the European Union. This is the final step of the ratification process and it will allow the full implementation of the agreement as of 1 September 2017[4]. It will also provide the adoption of necessary laws in order to create and ensure efficient business environment in Ukraine.

Moreover, EU-Ukraine arrangement on a free trade zone came into force on January 1, 2016, which means not only the fact that both parties open their markets to each other. In fact, Ukraine has obtained access to European market of goods and services but at the same time it has opportunity to develop and offer its production to the EU via the progressive removal of customs tariffs and quotas, and by an extensive harmonisation of laws, norms and regulations in various trade-related sectors, creating the conditions for aligning key sectors of the Ukrainian economy to EU standards[5].

[1] ContactUkraine. (2017). Choosing  a business structure in Ukraine.- http://www.contactukraine.com/company-law/business-structures-in-ukraine

[2] The Law of Ukraine No 1576-XII on Business Entities, September 19, 1991, http://zakon5.rada.gov.ua/laws/show/1576-12

[3] The Law of Ukraine No 514-VI on Joint Stock Companies, September 17, 2008, http://zakon4.rada.gov.ua/laws/show/514-17

[4] European Council. (2017). Ukraine: Council adopts EU-Ukraine association agreement [Press release]-http://www.consilium.europa.eu/en/press/press-releases/2017/07/11-ukraine-association-agreement/

[5] EU-Ukraine. Deep and Comprehensive Free Trade Area, January 1, 2016, http://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_150981.pdf