On 6 January 2018, Law No. 2210-VIII on Simplifying Business Activity and Attraction of Investments by Securities Issuers (the Law), the main purpose of which is to approximate the legislation on joint-stock companies with European Union standards, entered into force.
The law changes the approach to defining a public joint stock company, reforms the issue of the securities process, introduces new requirements to the scope and methods of issuer disclosure, and improves corporate governance in joint stock companies.
Change of approach to defining a public JSC
A public joint stock company is now a joint stock company whose shares were publicly offered and/or whose shares are admitted to trade on a stock exchange and included on the stock exchange register.
The Law’s transitional provisions stipulate that from the date of entry into force almost all Ukrainian joint stock companies (including those that have publicly placed securities) are governed by the legislation on private joint stock companies. From now on, only joint stock companies whose shares are listed on a stock exchange are genuinely public.
Furthermore, the requirement for banks to be incorporated exclusively in the form of a public joint stock company was cancelled. Banks are now allowed to be private joint stock companies.
Issue of securities
The Law unifies theissue of securitiesprocedure, abandoning the separation into private and public placement. Public placement is now a separate procedure that may be undertaken not only in the course of issue of securities, but also in respect of already issued securities. The Law also limits the number of cases when an issue prospectus is required. In particular, from 1 July 2018, preparation of issue prospectus is only required in cases of public offering, but in some circumstances it will not be required even in cases of public offering as well (for instance, in case of a public offer exclusively to qualified investors). At the same time, the scope of information included in the prospectus has become significantly broader.
The lower threshold for disclosure of voting share owners has been decreased from 10% to 5%. A differentiated approach to the scope and methods of disclosure has been established for public and private joint stock companies. In particular, the latter now have a smaller scope of disclosure. It is expected that these changes will help reduce the costs and administrative burden for private joint stock companies. However, banks remain subject to a higher disclosure standard regardless of their company type.
Another novel aspect of the Law is the introduction of a new type of activity related to the stock market – the activity of a disclosure agent. The functions of the disclosure agent may include disclosure of regulated information on behalf of stock market participants, distribution of consolidated information on financial instruments and/or stock market participants, submission of reports and/or administrative data to the regulator.
However, the new issuers' information disclosure mechanism will only become fully effective from 1 January 2019, since the Law provides for gradual entry into force of the provisions on the methods of disclosure with regard to disclosure agent activity.
Corporate governance in joint stock companies
The Law enhances corporate governance in joint stock companies, though most amendments relate to public joint stock companies and banks. Notably, the Law expanded the criteria for independent directors and allowed for the establishment of additional independency criteria in company charters or by-laws. In public JSCs and banks, independent directors must comprise at least one third of supervisory board members, and, in any case, there should not be fewer than two independent directors in a public JSC and not fewer than three in banks. Transparency standards for the supervisory board of joint stock companies and banks were increased. Supervisory boards are now obliged to submit performance reports. The Law also regulates the activity of the principal committees of the supervisory board.
Updating charters and by-laws
Public joint stock companies and banks are to bring their charters and by-laws into compliance with the Law by 1 January 2019, and other joint stock companies are to comply by 1 January 2020. However, if a company needs to increase or decrease its share capital, obtain a new license or permit, or a document confirming property rights, it will have to bring these documents into compliance with the Law earlier.