Key Changes to the Law on Limited Liability Companies and Companies with Additional Liability

What are the main changes provided by the Law on LLCs and ALCs

More than two years have passed since the adoption of the new Law of Ukraine "On Limited and Additional Liability Companies" - 17.06.2018 (hereinafter – the Law on LLCs and ALCs). We remind you that simultaneously, the Law "On Business Companies" ceased to be valid in the part concerning limited liability companies and additional liability companies.

Is the number of LLC participants limited

Now, according to Part 1, Article 4 of the new Law, the number of participants in a company is not limited. Previously, the number of participants in LLCs and ALCs was limited to 100 persons.

How is the charter capital formed under the new rules

1. Contributions to the charter capital must be made no later than 6 months from the date of state registration of the company.
2. The value of each participant's contribution to the company must not be less than the nominal value of their share. A non-monetary contribution must have a monetary valuation, which is approved by a unanimous decision of the general meeting of participants, in which all participants of the company took part. When establishing a company, such valuation is determined by the founders' decision to establish the company.

If a participant has delayed making a contribution or part thereof, the executive body of the company must send them a written warning about the delay. In such a case, the defaulting party has another 30 days to repay the debt.

If the contribution has not been made, the executive body of the company must convene a general meeting of participants, which may adopt one of the following decisions:

• on the exclusion of a company participant who has a debt for making a contribution
• on reducing the company's charter capital by the amount of the unpaid part of the participant's share
• on the redistribution of the unpaid share (part of the share) among other participants of the company without changing the size of the company's charter capital and the payment of such debt by the respective participants
• on the liquidation of the company.

The new Law prohibits increasing the charter capital until participants have fully paid their contributions.

Also, the new Law on LLCs and ALCs provides for the possibility of increasing the charter capital without additional contributions from its participants – at the expense of the company's undistributed profit. In this case, the composition of the company's participants and the ratio of the sizes of their shares in the charter capital do not change.

How to conclude a corporate agreement

A new feature in the Law on LLCs and ALCs is the introduction of the possibility for company participants to conclude a corporate agreement in writing. This is an agreement by which company participants undertake to exercise their rights and powers in a certain way or to refrain from exercising them. Also, a corporate agreement may provide for conditions under which a participant has the right or is obliged to buy or sell a share in the charter capital (or part thereof), and also define cases when such a right or obligation arises.

You can read more about this change in our colleague's article here.

The content of a corporate agreement is not subject to disclosure and is confidential, unless otherwise established by law or the agreement itself. The obligation to disclose a corporate agreement is established only for companies with state investments (Art. 7 of the Law).

Is a supervisory board a mandatory body for LLCs, ALCs

According to Art. 38 of the new Law, a supervisory board is not a mandatory body of the company, but if it is established, it controls and regulates the activities of the company's executive body within the competence defined by the charter. In contrast, the audit committee, which previously controlled the activities of the company's head, is not provided for in the new Law.

Independent members (independent directors) may be part of the supervisory board.

A civil law contract or an employment contract is concluded with each member of the supervisory board. If the relationship with such a member is employment-based, then, of course, they will receive a salary. However, a civil law contract can be both paid and unpaid.

How dividends are paid

As before, dividends will be paid from the company's net profit, proportionally to the size of the participants' shares. However, the procedure for their payment will be changed.

According to Art. 26 of the new Law, dividends can now be paid for any period that is a multiple of a quarter, unless otherwise provided by the charter. The payment of dividends itself is made within a period not exceeding six months from the date of the decision on their payment, unless another period is established by the company's charter or by a decision of the general meeting of participants. Dividends will be paid in cash, unless otherwise established by a unanimous decision of the general meeting of participants, in which all participants of the company took part.

In addition, the new Law establishes restrictions on the payment of dividends (Art. 27). In particular, a company now has no right to pay dividends to a participant who has not fully or partially made their contribution.

Are the rights of the executive to perform certain transactions limited

Chapter V of the new law provides that the company's charter may establish a special procedure for obtaining consent from the company's authorized bodies for performing certain transactions depending on the value of the transaction's subject matter or other criteria (significant transactions).

Decisions on granting consent to perform a transaction, if the value of property, works, or services that are the subject of such a transaction exceeds 50% of the company's net assets as of the end of the previous quarter, are made exclusively by the general meeting of participants.

Is it necessary to notify creditors about the reduction of charter capital

Under the new Law (Part 3, Art. 19), when reducing the charter capital, the decision on such reduction no longer needs to be sent to all creditors, but only to those whose claims are not secured by a pledge, guarantee, or surety. Also, the 3-day period for sending such a decision has been changed to a 10-day period. And now the decision itself is not sent, but only a written notification about it is provided.

Can a share in an LLC, ALC be alienated or pledged

A share in an LLC or ALC can be alienated or pledged, as provided by Art. 21 of the new Law, but it also establishes that the company's charter may provide that the alienation of a share (or part of a share) and its pledging is permitted only with the consent of other participants.

If you need legal support, or if you have questions regarding making changes to the company's charter and concerning the new provisions of the Law, please contact us by phone +38 044 492 87 16 or fill out the form on the website, and we will call you back.