This is one of fundamental juridical aspects of M&A in Ukraine. If you are selling or buying a company in Ukraine, most probably it will be an LLC as it is the most popular company type in Ukraine. As of 01.07.2019 there were almost 245 000 limited liability companies registered in Ukraine of 319 360 all legal entities (including NGOs and beneficiary organizations). So more than 75% of all companies in Ukraine are formed as LLC. Sometimes this procedure can be much more complicated than Ukraine company registration.
The main and fundamental document that confirms the transfer of shares is so called ACT (of receipt and transfer of shares). This certificate is the only document that is provided to the state registrar of companies in order to register the shareholder rights. The act of Ukrainian company share transfer is signed at the notary office and confirm that the shares has been already transferred. Such a document also confirms the fact that all the payments (if there were any) had been properly made. Consider also that the new shareholder (that buy shares) is called during transaction and by the law as the third party. The act is always based agreement or a contract and is signed at the notary office. It can be share sale agreement (in case the shares are acquired) or it can be a deed of gift or other contract that can be concluded under civil code of Ukraine. Any way, share transfer agreement can not be dated after the act has been endorsed. Often our clients sign both documents (share sale agreement and share transfer act) and make a payment in one day, and this is the best way to proceed that reduces risks for both parties. After the act has been signed, it is to be submitted to state registrar of companies of Ukraine. It can be presented to registrar personally by one of the parties or by the representative under the power of attorney. During this procedure, the registration officer checks all the data and conducts amendments to Ukraine companies register.
Actual stockholders have a priority right to acquire shares. So there shall be consent from the side of actual shareholders on transaction made by other shareholders. The procedure sometimes can be complicated depending on the LLC corporate structure and amount of shareholders. Consider also that transaction is possible only on share that has been fully payed by the current owner. Actually, this is the obligation of a current shareholder not to sell a share that has not been refunded.
To assume everything mentioned above, the legal procedure of Ukrainian company share purchase is the following:
- share transfer agreement;
- share transfer act;
- registration of new share owner at government office.
Consider, if this is the real business purchase transaction, you should conduct a due diligence of Ukrainian company before you will start LLC purchase procedure. One more important thing to consider is to check the seller’s debts. It is forbidden to get a shares from the owner that has any proven financial obligations in front of Ukrainian government. This is the basis for registration officer to refuse the registration of share transfer. Also, if you are going to be a majority stockholder of Ukrainian business, you should do your best to get a right legal basis for control over a company director. Despite the fact that you have acquired shares does not make you a company manager. There is a special procedure to remove Ukraine company director or manager from his position. And consider that only company manager is entitled to make financial and banking transactions as well as conclusion of a treaty from the name of Ukrainian LTD. If the shares are bought from or sold to an individual, be sure to obtain a consent from his/her spouse, if he/she is married. This fact shall be controlled by the notary.
There is also a way to get a shares in a company through increasing of a share capital. If the company need and additional financial funds to boost up business, shareholders have the right to accept a new shareholder that will increase the company capital and will obtain a share. In this way there is no need to make a share purchase agreement and to sign an act.
There are other documents that shall be made:
- minutes of general meeting or so called protocol (it is a document in which shareholders take a decision to increase the authorized capital and to accept a third party);
- corporate contract (optionally);
This procedure is a bit bureaucratic and can’t be done during one legal procedure. After the protocol has been signet, during some period (mentioned in that decision) the third party has to make an investment to the company. After the payment has been done, current shareholders has to call the general meeting and to approve the fact of investment and accept the third party as a shareholder. The same legal document approves the decrease of shares of other stakeholders.
Before June 2018 there was no special law that could regulate the legal status of LLC in Ukraine. Now there is a special law on limited liability companies and the legal status is quiet well regulated. As of today the procedure of share sale and purchase is properly regulated.
Since may 2019 there is a growing interest to Ukraine market. Ukraine economy growth is boosting up. So we hope that this article will be useful to thousands of businessmen from all over the world.