CORPORATE AGREEMENT IN LLC BRAND NEW IN UKRAINE
On June 17 the new law on limited liability companies came into force. This is, undoubtedly, a great event for Ukrainian business. Among the numerous legal instruments foreseen by the LLC law, one article should be focused on as completely new – corporate agreements, better known worldwide as shareholder agreements.
It should be noted that the Ukrainian parliament has already made an attempt to legalize corporate agreements – law 1984-VIII, adopted on March 23, 2017, made it possible to conclude “agreements about exercising the rights of shareholders’ (founders’) of LLCS,” but for some unclear reason this law lay unsigned by the president for almost one year, and finally came into force only on Feb. 18, 2018 - straight a er the adoption of the LLC law, which repealed all previous legislation about LLCS.
Article 7 of the LLC law stipulates that a corporate agreement is a free- of- charge written agreement, whereby the shareholders of company undertake to exercise their rights and powers in a specific way, or refrain from exercising them.
Law 1984 also makes it possible to conclude agreements between creditors and shareholders of an LLC in order to secure a legally protected interest of these third parties. The LLC law does not provide the same possibility explicitly, but at the same time does not limit that possibility. Opinions are divided: some are of the opinion that the definitions in LLC law are much broader than those in Law 1984, and the possibility to conclude corporate agreements with third parties remains. Others see LLC law as limiting the scope of potential parties to corporate agreements.
According to the LLC law, a corporate agreement that does not meet the said conditions is null and void. It is interesting to note that a deal defined as null under the law does not require to be nullified by a court.
A corporate agreement may be interesting to Ukrainian businesses as legal instrument for the following reasons: 1. Corporate agreements may stipulate the provisions or a way to determine the conditions under which a shareholder has the right, or is obliged, to buy or sell a share (or part of a share) in the chartered capital of a company, as well as to determine in which cases such rights or obligations arise. This possibility is, probably, the most long- awaited in Ukraine, as it allows the implementation of such instruments as put and call options, and tag- along and drag- along rights - good solutions to prevent corporate conflicts between shareholders (“deadlocks”) and to provide additional protections to minority shareholders. 2. Unlike the statute of a LLC, which is normally available to the state authorities, the content of a corporate agreement is confidential, apart from in the case of agreements to which the party is a state, or the party is a local community, state or communal enterprise or legal entity that is 25 percent or more owned by the state or a local community – these have to be published within 10 days of being agreed. It should be noted that unlike Law 1984, which obliged one of the agreement’s parties to notify the LLC about the conclusion of an agreement within three working days of the signing date, the LLC law does not set out similar obligation. It is also important to note that according to the LLC law, a contract concluded by a party of a corporate agreement that is in violation of such a corporate agreement, is null and void if the other contractual party was aware of or should have been aware of such a violation. 3. Unlike the statute of an LLC, the adoption of and amendments to which require special arrangements from shareholders, the adoption, amending and termination of a corporate agreement are generally much easier and less formal, as they do not require notarization or registration. 4. Corporate agreements may contain vote pooling provisions – a legal way for shareholders to agree ahead of time as to how they will vote on specific questions (the appointment of management, etc.). The LLC law provides that corporate agreements that make it obligatory for shareholders to vote according to the instructions of an LLC’S management bodies are null and void.
ANK Law firm 9, Lanzheronovskaya Street, 4-rd floor, office 17, Odessa, 65026, Ukraine of[email protected] www.ank.odessa.ua +38 0482 348 716
Maxim Karpenko Head of Corporate Law Practice of ANK Law Office, Attorney-at-law
Olena Koch Assistant of attorney-at-law