Formal procedures and information for opening a business in Ukraine
It is possible to establish an independent business in Ukraine as either a private person or a foreign legal entity without too many hurdles.
Various company structures are available, but only three are considered to be useful for those wishing to establish a company in Ukraine. In general, there are three basic forms for consideration:
- Representative office
- Legal entity
- Contract of Joint Cooperation
A representative office acts in the name of its parent company. A legal entity functions in contrast to the representative office as an independent juridical body. Among the legal entities, the LLC (TOV) is most popular among investors due to the clearer legal frameworks and the limited liability of participants.
For practical reasons, the following text will focus on the legal requirements of the more popular legal structures:
Joint Stock Company (VAT & ZAT)
Joint Stock Company (JSC). Either an 'open' or 'closed' joint stock company which is abbreviated to VAT and ZAT in Ukrainian
For an open joint stock company (VAT), the shares are signed publicly and traded on the stock exchange. The purchase and sale of shares can be conducted without the approval of the other shareholders.
For a closed joint stock company (ZAT) the shares are to be allocated only between the participants of the new company, and the shares are not offered to the public. The shareholders have a purchase option to buy the remaining shares in the case of a share sale.
The 'statute' is the sole document of foundation. If more than one founder exists, a statutory declaration has to be drafted. If the companies foundation is conducted by a private person, the declaration must be verified by a notary. The registration process of a ZAT takes approximately 8-10 weeks, and about 16-20 weeks for VAT.
The share capital of a JSC is the contributed capital of the share holders which must amount to at least 1250 times the current minimal official salary which is approximately 93.750 EUR as of August 2008.
During this process the issuing of shares is determined by the securities authorities. 25% of the share capital must remain in the possession of the founders for at least two years.
Before the foundation assembly of a JSC, at least 30% of the nominal share value of subscribed shares must be deposited for a VAT, before the registration proceeds.
For both forms of a JSC (open stock company VAT and the closed stock company ZAT), where all shares are allocated between the founders, at least 50 % of the nominal share value must be deposited at the time registration.
NB: The Supreme council of Ukraine passed the amended 'law on Joint Stock Companies' which will be in force from 30.04.2009.
The amendment contains the following points concerning Joint Stock Companies' legal statutes:
- two types of Joint Stock companies are introduced: public and private;
- the total amount of shareholders in private Joint Stock company shall not exceed 100 persons; and in a public Joint Stock company shall be more than 100 persons;
- the shares in a private Joint Stock company shall be issued only privately, and in public Joint Stock company both privately and publicly;
- the obligation of a public Joint Stock company to list and register on at least one stock exchange;
- the total amount of Joint Stock company share capital is the same - at least 1250 times of the current minimal official salary.
Further, the possibility also exists to issue non-voting preferred stock.
Limited Liability Company (TOV)
The legal frame work of a limited liability company in Ukraine is quite detailed, regulated and originates from German GmbH standards with a few of distinctions. In Ukrainian, a limited liability company is abbreviated to TOV.
TOV's require a share capital of at least 100 minimum official salaries. In August 2008 the official minimum salary was 525 UAH, which amounts to approximately 7.500 EUR. The capital stock is determined in the statutory charter. At the moment of incorporation, 50% of the capital stock must be deposited in to a temporary bank account prior to registration. The outstanding amount has to be submitted within 12 months. The TOV is solely liable for its contributed capital stock. Private Person and Legal Entities are equally liable as share holders.
To reduce capital stock, an appropriate decision of the shareholders meeting must be agreed on. That decision comes into effect three months after its entry in the state register, and public announcement.
All shareholders are authorized to sell their shares to the other shareholders. The rules and procedures can be explicitly regulated in the statutory charter. The shareholders have first option to buy shares and can resign at any time.
A shareholder assembly is called at least twice a year (if not stated otherwise in the statuary charter), and is only considered a quorate if more than 60% of the statutory capital is present.
The management board can consist of one person (Director), or several people as an executive board. The management board may also contain non-shareholders.
The management board is appointed by the shareholder assembly, and conducts business operations on a day-to-day basis; however the rights and responsibilities of the shareholder assembly remain protected. Ukrainian law determines the creation of a revision committee which is to be regarded as a permanent body incorporated in a TOV, designed to monitor the financial and economic activity of the management board.
The Registration Steps:
It is quite common for law firms to facilitate the registration of companies in Ukraine, providing advice regarding which legal form best suites the company. Issuing power of attorney (POA), requires a company name to be reserved and the founders documents to be legalized.
A bank must be chosen in order to open a temporary bank account for transferring the initial capital stock. It is wise to find a good banking partner for further cooperation after the company is incorporated.
The law firm which leads the registration should be able to provide a bilingual statutory proposal and prepare a declaration for the foundation of the TOV.
Next, a director must be appointed who at the moment of registration (if foreign), must possess a valid work permit. This is a catch 22 situation for foreigners since you can apply for a work permit after incorporation. In this case, our law firm provides a temporary director (from the firm) who as a Ukrainian citizen may be appointed director immediately.
After approval of the statutory proposal by the founders, and the transfer of at least 50 % of the capital stock, the law firm can commence registration. At the moment of registration, the company becomes incorporated. The registration is conducted by the local authorities where the company is legally located. After receiving complete documentation from the founders, approximately one week is required for processing. The registration procedure is herewith not completed since following administrative organs have to follow.
- Registration at the department of statistics
- Registration at the pension fund
- Registration at the unemployment centre
- Registration at the invalidity fund
- Registration at the accident insurance fund
- Permissions for company stamp and seal
- Registration at tax inspector
- Opening of a permanent bank account
- Preparation and registration of documents at the customs authority
For the complete registration of an LLC (TOV) a time frame of between 3-5 weeks should be estimated.
The registration will be entered in the unified state register for legal and private entities which is accessible by the public. The founders receive a registration document confirming their status.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
