Setting a Business in Ukraine

When a foreign company or individual plans to establish business presence in Ukraine, a number of options are available.The forms of business most commonly used by foreign investors in Ukraine are the joint stock company or share corporation, the limited liability company and representative office. Other options are available under Ukrainian law, such as joint ventures, subsidiaries, partnership, limited partnership, additional liability company, and non-corporate joint activity, but they are rarely used.

The main laws that govern the establishment and activity of legal entities in Ukraine are the Civil Code, the Commercial Code and the Law on Companies.

Foundation and registration

In Ukraine, a company may be founded by Ukrainian and/or foreign legal entities, individual citizens as well as foreign citizens and individuals without citizenship. A company acquires the status of a legal entity after state registration.

Companies are established and act on the basis of their statutory documents, charter or foundation agreement. The foundation documents should contain information about the name of the company, the subject and purposes of its activity, the founders and participants, the amount and nature of statutory capital, the procedure for distributing profits and losses, the management structure and competence, the procedure for governing bodies to adopt decisions, the procedure for amending statutes, the procedure of dissolving the company, and other issues specifically defined for certain companies, based on their organizational form.

Joint-stock companies, limited companies and additional liability companies act on the basis of a charter and partnerships act on the basis of a foundation agreement. Although the conclusion of a foundation agreement is not obligatory for the companies with certain organizational forms, the founders may choose to conclude a foundation agreement in order to establish procedure for contributing to statutory capital, to set out the conditions for joint activity in the foundation of the company, and so on.

Contributions to statutory capital

Founders can contribute to the company’s statutory capital both in monetary form and through in-kind contributions such as:

• Structures and buildings;

• Equipment and other tangible assets;

• Securities (except for promissory notes);

• Rights of possession to land, water and other natural resources; or

• Other property rights (including intellectual property rights).

The use of Budget funds, borrowed funds or pledged property to form statutory  capital is prohibited.

Dissolution/Liquidation

Companies may terminate their activity through reorganization (merger, takeover, split-up, transformation) or through dissolution. When a company is dissolved, its property, rights and obligations are transferred to its legal successors. A company may be liquidated based on (i) a decision by the participants/shareholders or (ii) court decision. Upon dissolution, the creditors’ demands, if any, are satisfied in the order established by Ukrainian  property left after all creditors’ demands have been settled is distributed among its participants in the order provided by the foundation documents.

Joint-stock company or Aktsionerne tovarystvo in Ukrainian (AT)

A joint-stock company is a company with statutory capital divided into a certain number of shares of definite equal nominal value. Shareholders are liable for the company’s commitments only within the limits of their shares, that is, shareholders cannot be required to make any further contributions beyond their contributions to the statutory capital and cannot be liable for the company’s commitments.

The statutory capital of a joint-stock company cannot be less than the equivalent of 1,250 minimum salaries, based on the rate effective at the moment the company is establishment. Effective January 1, 2010 the minimum wage was equal to UAH 869 per month.

The Law on Companies provides for two types of joint-stock companies:

• Open or public joint-stock company or Vidkryte aktsionerne tovarystvo (VAT), whose shares are distributed through open subscription and may be circulated on a stock exchange; and
• Closed or private joint-stock company or Zakryte aktsionerne tovarystvo (ZAT), whose shares are distributed among the founders and cannot be distributed through open subscription or circulated on a stock exchange.

The joint-stock company is governed by four bodies:
1. A general meeting of shareholders, which is the company's highest body;
2. The supervisory council, which represents shareholders’ interests between general meetings and controls the executive body;
3. The Board of Directors and/or General Director, which are the executive bodies governing the company's day-to-day operations;4. The audit committee, which controls the financial and business activity of the executive body.

Limited liability company or Tovarystvo z obmezhenoiu vidpovidal’nistiu in Ukrainian (TOV)

A limited liability company is a company with its statutory capital divided into participatory shares, as determined by the foundation documents. Participants are liable only to the extent of their contributions. For example, participants bear any risks related to the company’s activity only in proportion to their contributions. A participant who systematically breaches obligations before the company may be excluded from the company if other participants holding more than 50% of the total amount of the company vote in favor of such a decision.

The statutory capital of a limited liability company must be not less than the equivalent of 100 minimum salaries based on the rate effective at the time of company’s establishment. Effective January 1, 2010 the minimum wage was equal to UAH 869 per month.

A limited liability company is governed by three bodies:• The general meeting of participants, which is the company's highest body;• The Board of Directors and/or General Director, which are the executive body governing the company's day-to-day operations;

• The audit committee, which controls the financial and business activity of the executive body.

Additional liability company or Tovarystvo z dodanoiu vidpovidal’nistiu in Ukrainian (TDV)

An additional liability company is one whose statutory capital is divided into participatory shares as determined by the foundation documents. Participants primarily become responsible for the company’s commitments to the extent of their contributions to statutory capital. However, if these sums are insufficient, participants shall bear additional liability pro rata to each one’s contribution. The limits of this participant liability are provided in the statutory documents.

The Law on Companies provides for the same requirements regarding the minimum amount of statutory capital for additional liability companies as for limited liability companies.

General partnership or Povne tovarystvo in Ukrainian (PT)

A general partnership is a company where all participants are jointly engaged in company’s business activity and are jointly responsible for the company’s obligations with all of their assets.

A general partnership is managed according to the foundation agreement among the partners. The activity of the general partnership may be carried out by all, one or some of the partners, who act on behalf of the partnership on the basis of powers of attorney issued by the other partners.

Limited partnership or Komandytne tovarystvo in Ukrainian (KT)

Limited partnership is a company in which one or more participants carrying out business activity on behalf of the partnership are held jointly responsible with all their property for the partnership’s commitments (general partners), while the responsibility of the remaining participant(s) who do not participate in the activity of the company is limited to their contributions to the company’s statutory capital (limited partners).

In a limited partnership, only the general partners carry out the management of the partnership. Limited partners may not interfere with the activity of the general partners in the management of the company. A limited partnership must terminate its activity when all general partners withdraw from the company.

Representative office or Predstavnytstvo in Ukrainian

A foreign company may set up a representative office in Ukraine. A representative office is not a legal entity under the Ukrainian law but only acts for and on behalf of the foreign founder.

In practice, representative offices of foreign companies may be of two types: a representative office through which a non-resident entity carries out its business activity in Ukraine—which is considered a branch from the legal viewpoint—and a representative office whose functions are generally limited to representing the interests of the foreign entity, performing marketing activities, and providing other support functions to promote the business of the foreign founder. Representative offices must be registered with state authorities under Ukrainian law.

Non-corporate joint activity

Non-corporate joint activity is one of the possible options provided by Ukrainian law for conducting business in Ukraine. Joint activity is carried out via a contractual joint venture organized using a combination of funds or assets from the participants or without a combination of contributions in order to achieve joint business objectives. The joint activity does not have the status of the legal entity. Moreover, there is no requirement for a minimum amount of capital to be contributed by the participants. The conditions of carrying out joint activity are established by written agreement among the participants. Joint activity is subject to registration with state authorities under Ukrainian law.