Ukraine: deregulation of the corporate sector

Ukraine used to be an unattractive jurisdiction in terms of doing business due to the excessive regulation involved with setting up and running a business. The current Ukrainian government is now committed to encouraging local and foreign investors by reducing unnecessary regulation, including within the corporate sector.

This spring, the Ukrainian parliament adopted laws providing for:

(i) the simplification of running businesses and companies by cancelling, among other requirements, the mandatory use of corporate seals, and

(ii) the simplification of procedures for reorganisation and liquidation of businesses by abolishing unnecessary complicated requirements.

Simplification of establishment and running businesses

In particular, on 15 April 2014, the Ukrainian parliament passed the Law of Ukraine "On Amending Certain Laws of Ukraine for Simplification of Business Opening Procedures" (the “Business Simplification Law”).

The Business Simplification Law’s principal purpose is to simplify the procedures for the establishment of business in Ukraine and to enable investors to set up companies in a more cost effective manner and save time that used to be spent on the physical filing of the application documents.

Firstly, the changes abolish the fee for the initial state registration of a legal entity. The fee will only now be required for the registration of amendments to the legal entity’s record in the Unified State Registry of Legal Entities and Individual Private Entrepreneurs and for the issuance of registration certificate duplicates.

Secondly, the changes broaden the scope of information regarding companies that the public will be able to access via the on-line version of the Unified State Registry of Legal Entities and Individual Entrepreneurs. In addition to basic information regarding companies, the public will be granted free on-line access to information about particular company’s legal predecessors, their separate sub-divisions (units), and any enforcement procedures commenced that relate to the company. This will add more transparency and eliminate the risk of speculating on information about legal entities.

Thirdly, the Business Simplification Law introduces a mechanism, which will allow the registering of a business through the filing of electronic form documents without applying a digital signature, as was previously required.
Finally, the most important change initiated by the Business Simplification Law is the cancellation of the mandatory requirement for legal entities to apply corporate seals. Entrepreneurs and companies will now be free to decide whether or not they need a corporate seal. This novelty is based on successful examples from foreign countries where the procedure for signing contracts is much simpler.

The Business Simplification Law will become effective on 6 November 2014.

Simplification of reorganisation and termination of legal entities

Furthermore, on 13 May 2014, the Ukrainian parliament adopted the Law introducing changes to the Law of Ukraine “On State Registration of Legal Entities and Individual Entrepreneurs” regarding the reorganisation of state enterprises and simplification of termination of legal entities (the “Law on Business Reorganisation and Termination”).

Essentially, the Law on Business Reorganisation and Termination abolishes certain cumbersome requirements that used to complicate the procedures of reorganisation and liquidation of legal entities. The Law on Business Reorganisation and Termination abolishes the requirement to register the amendments to the company’s record in the Unified State Registry of Legal Entities and Individual Private Entrepreneurs when the company is in the process of termination.

This change is particularly important for foreign investors in the context of ownership structure alterations. In practice, reorganisation and liquidation of Ukrainian companies can last for months and even up to several years. During this period, circumstances may occur that change core information about the Ukrainian company and, ultimately, should be reflected in the Unified State Registry of Legal Entities and Individual Entrepreneurs. Information about a change of shareholders, address, or related to the sub-divisions (separate legal units) of the company, which is in reorganisation or liquidation, can now be appropriately registered.

Additionally, it will also be possible for a company that is undergoing reorganization or liquidation to act like a founder and set up new companies. The Law on Business Reorganisation and Termination implies that in case of reorganisation, the share in the charter capital of the new company will be transferred to one of the legal successors, while in the case of liquidation, such share will be included in the liquidation balance.

Adoption of these changes will significantly simplify the reorganization and liquidation procedures of legal entities and, hence, improve the business climate. This should help to attract domestic and foreign investment, and improve Ukraine’s position in the international ratings of business attractiveness.

The draft Law on Business Reorganisation and Termination is currently being prepared for the acting President’s signature and, if signed, will be enacted from the date of its publication in the official legal newspaper of Ukraine.

Laws:

The Law of Ukraine "On Amending Certain Laws of Ukraine for Simplification of Business Opening Procedures" N1206-VII dated 15 April 2014.

The draft Law introducing changes to the Law of Ukraine “On State Registration of Legal Entities and Individual Entrepreneurs (regarding the reorganisation of state enterprises and simplification of termination of legal entities)” N 2121-1 dated 11 February 2013 (adopted on 13 May 2014 and is currently being prepared for the President’s signature).