Short summary of characteristics
Limited Liability Company (“LLC”) is a type of commercial company that bears liability for its obligations only with its own property. LLC is a company with charter capital divided into participatory interests and it may have one or several participants (the number of participants is not limited).
Due to practical considerations and less restrictive regulatory framework, LLC is the most frequently used corporate form in Ukraine. It offers several advantages, including no statutory requirements for minimum charter capital amount, relatively uncomplicated incorporation procedure, simple and flexible corporate governance, as well as fewer regulatory requirements and restrictions.
LLCs do not issue shares. The charter capital of an LLC is formed by contributions of participants and the charter capital amount is the sum of par value of participatory interests of its participants. The value of the participants’ contributions to the charter capital of an LLC should be no less than the par value of their respective participation interests. A contribution to the charter capital of an LLC may be in the form of money, securities or other property.
Participation interests are qualified as corporate rights, i.e. rights of a participant to manage the company, receive dividends or distributions in case of liquidation of the company, as well as other rights prescribed by the law.
The general meeting of participants is the highest governing body of an LLC and may decide on any matter of the company’s activity. The exclusive competence of the general meeting of participants includes adoption of the company’s charter, increasing or decreasing the company’s charter capital, appointing supervisory board members,director or members of the board of directors, declaring dividends, and winding up the company, as well as other matters established by the law, which may be further supplemented in the charter. The powers within the exclusive competence of the general meeting of participants may not be delegated to other bodies of the company.
Ukrainian legislation provides for a two-tier board structure. An LLC must have an executive body (a sole director or a board of directors) and may, but does not need to, have a supervisory board. If a supervisory board is created, its competence may include appointment of the director or members of the board of directors. By default, an LLC has a sole director. The charter may provide for a board of directors. The sole director or the board of directors is responsible for day-to-day business activity of the company and may decide on all matters of the company’s activity, except for matters under the exclusive competence of the general meeting of participants and the supervisory board (if created).
Participatory interests in an LLC are transferrable instruments. By default, participants have a pre- emptive right to purchase participatory interest (or part thereof) of other participants which is offered for sale to third parties. The pre-expletive rights may be waived in the company’s charter by a unanimous resolution of all of the company’s participants. Also, participants of an LLC may enter into a shareholders’ agreement that may provide for waiver of the pre-emptive rights by a party or parties to such agreement.
LLCs vs. Joint Stock Companies
LLCs are always private companies, whereas a joint stock company (“JSC”) may be either private or public. Unlike JSCs (including those having one shareholder), LLCs are generally not subject to regulatory supervision of the National Securities and Stock Market Commission (unless they are issuers of debt or certain other types securities).
As noted above, LLCs do not issue shares, as their charter capital is divided into participatory interests which do not qualify as securities. At the same time, the charter capital of a JSC is divided into shares, which qualify as securities.
Unlike LLCs, JSCs are subject to more stringent regulations as to corporate governance (e.g. they may be required to establish supervisory boards, the share issue and transfer procedures are more complicated, lengthy and costly, etc.) and may not operate based on a model charter.
LLC formation checklist
The following elements are required when establishing an LLC in Ukraine:
Registered office of the LLC
An LLC needs to have a registered office in Ukraine. The respective premises need to be either owned by the company or it needs to have another entitlement to use the premises (e.g. under a lease agreement).
The purpose (i.e. business) of the LLC
The LLC must register the types of its business activity in accordance with the relevant codes of the Ukrainian Classification of Types of Economic Activities.
In practical terms, specifying the LLC’s types of activity is relevant from the tax perspective, as the tax authorities may decide that the costs incurred by the company are not tax deductible if they are not in line with the corporate purpose. Exceeding the company’s purpose does not render any legal transactions entered by the company void or illegal.
Charter capital and its distribution between participants
There is no minimum requirement for charter capital of an LLC. From a practical standpoint, the initial amount of charter capital should cover the costs for initial set-up and maintenance of the company until it starts generating income or is funded otherwise (e.g. by shareholder loans). The amount of such costs may vary depending on individual factors for each company (such as the “idle period” before commencement of operations, salary of the director(s) and employees, cost of registered address or office lease, cost of accounting outsourcing, etc.).
Also note that a foreign natural person must have a Ukrainian tax identification number in order to be registered as a participant of an LLC.
The company must have at least one director. The director of a Ukrainian company must have a Ukrainian tax identification number.
An LLC should have at least one bank account opened in a Ukrainian bank in order to be able to pay taxes and salaries to employees, etc. The bank account may be opened after registration of the company in the Companies Register.
It is highly recommended for an LLC needs to engage an outsourced accountant or hire its own accountant to help with bookkeeping in accordance with the requirements of Ukrainian law. By default, the company’s director is responsible for the company’s bookkeeping.
LLC incorporation procedure
In order to incorporate an LLC, the following documents have to be filed to a state registrar by or on behalf of the founder(s):
An LLC is incorporated within 24 hours (during business days) from filing of respective documents to a state registrar, provided that the filed documents comply with the requirements of the law. Faster registration is possible for an uplifted registration fee.