Kyiv Post Legal Quarterly - - News -

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] +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

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