New rules of play for LLCs
The matter of amendments
The Law of Ukraine “On Limited Liability Companies and Additional Liability Companies” was adopted by Ukrainian Parliament.
On 6 February 2018, the Law of Ukraine “On Limited and Additional Liability Companies” was adopted. The Law comes into force three months after being published, except for its one provision.
Whom it will affect
All legal entities operating as limited liability companies
The Law provides for different amendments and novelties for limited liability companies (LLCs). In particular, the Law provides for opportunity for shareholders to enter into corporate agreements, as well as issue irrevocable power of attorney. In addition, the Law excludes the quorum concept and cancels limits of the number of LLC shareholders, cancels the prohibition to converting debt into a share (debt-to-equity swap).
Important novelty of the Law is the change of the voting procedure at the general meeting. Namely, the Law provides for three categories of issues, deciding on which requires different number of votes: 50%+1 of votes from the total amount of votes of all shareholders; ¾ of votes from the total amount of votes of all shareholders; unanimous voting. Shareholders shall be also entitled to establish the number of votes concerning specific issues (however, no less than the established majority and except for the issues requiring unanimous voting). Additionally, the Law provides for opportunity for the general meeting to decide on issues not included into the agenda.
Besides, the Law amends the procedure of charter capital formation and change of its amount. The term of charter capital formation becomes two times shorter and amounts to 6 months following the state registration date, unless otherwise provided in the charter. In case of charter capital increase, the term of additional contribution making shall be 1 year (for shareholders) and 6 months (for the third parties). Additionally, the Law establishes the preemptive shareholders right to make additional contributions. In case of charter capital decrease, the Law provides for new term of the creditors appeal towards the company (30 days instead of 3 months).
One more novelty of the Law is the detailed procedure of withdrawal and exclusion of the shareholder from LLC. From now on the shareholder shall be entitled to withdraw from the LLC without the other shareholders’ consent (if the withdrawing shareholder holds less than 50% in charter capital of LLC). As for the exclusion of the shareholder from the LLC, the Law provides for such possibility in case of failure to make contribution into the charter capital by the shareholder, as well as in case of death / termination of the shareholder, if such shareholder holds less than 50% in the share capital of LLC, subject to failure of its heirs / successors to apply to LLC within the established term.
How to prepare / mechanism of the amendments introduction
The Law requires all charters of LLCs to be brought into compliance with the Law, as well as provides for possibility to restate a lot or provisions in the charter upon shareholders’ own discretion. In addition, shareholders shall be also able separately to agree upon LLC governance via corporate agreements execution. Besides, cancellation of limits of the number of shareholders provides for new opportunities for transformation of joint stock companies into LLCs.