New Law on LLCs: What Will Change in Business

The Law on LLC provides many innovations which more concern the rights of participants for introduction of important rules for them in the charter of the company and define not settled processes of corporate management. 

We would like to point out the main innovations in the Law on LLC.

The introduction of a corporate agreement 

To realize their rights, the participants of the LLC got an opportunity to conclude a corporate agreement. It is not a constituent agreement, but a new legal framework for regulating relations between the participants of the LLC. 

Note: the number of LLC participants will now not be limited. 

Authorized capital of LLC 

The authorized capital of LLC, as before, consists of the nominal value of its participants’ shares, expressed in the national currency of Ukraine. 

Note: 6 months in such a period, the participants of the LLC should make their contributions to the authorized capital. 

The Law on LLC establishes a six-month (instead of annual) term, during which a participant must contribute to authorized capital. 

Note: participants have the right to extend this term for only 30 days. If during the term and during this period the participant will not make a share, the executive body of LLC shall convene a general meeting of participants, which will make one of the following decisions: 

·         exclude a participant from LLC;

·         reduce the authorized capital of LLC in the amount of unpaid share of the participant;

·         redistribute the unpaid share (part thereof) among other members of the LLC without changing the size of the authorized capital;

·         liquidate LLC. 

In addition, the deadline is set for the participants to contribute their additional contribution – one year for participants and six months for third parties.  

Note: to increase the authorized capital of LLC now is possible not only at the expense of additional contributions of participants (as at present), but also at the expense of retained profit. 

Heirs of the participant of the LLC 

By the general rule, unless otherwise provided by the charter of LLC, in case of death or termination of a participant, the share passes to its heir or successor without the consent of the participants of the LLC.  

Exit of the participant from LLC 

Under the Law on LLC the right of a participant to leave LLC depends on the size of its share. If the participant’s share is less than 50%, he may leave the company at any time without the consent of other participants. If its share – 50% and more, the exit of the participant from the LLC requires the consent of the rest of the participants. They must decide to grant such an agreement within one month.

Note:  a participant with a share of capital of less than 50% may leave the LLC at any time. 

Payment of dividends 

Regarding the payment of dividends The Law on LLC contains two innovations: 

·         the period for which they are paid should be a multiple of the quarter, unless otherwise provided by the charter. At the same time, dividends should pay in the term not more than six months from the date of the decision on their payment, if another term is not yet set in the charter of the LLC or the decision of the general meeting of participants;

·         a prohibition on paying dividends when:

–         the LLC did not pay off with the participants who terminated their participation in the LLC, or with the successors of the participants;

–         property of LLC is not sufficient to meet the creditors’ requirements;

–         the participant did not pay share in full or in part. This prohibition applies only to such participant. 

Dividends are paid from the net profit of LLC to participants on the day of the decision to pay dividends, in proportion to the size of their shares. 

Responsibility of the executive body for the obligations of LLC 

In accordance with the Law on LLC, if the value of net assets of the LLC decreased by more than 50% compared with the situation at the end of the previous year, the executive body of LLC convenes a general meeting of participants. The meeting must take place within 60 days from the date of such reduction. The agenda of the general meeting of the participants includes the questions about the measures that they have to take to improve the financial position of LLC, to reduce the authorized capital LLC or even to liquidate LLC. 

If the executive body (in particular, the director) does not do this, and because of this, LLC will be declared bankrupt before the expiration of a three-year term from the date of decrease in the value of net assets, the members of the executive body will jointly bear the subsidiary liability for the obligations of LLC.

Note:  LLC may set up a supervisory board to monitor and regulate the activities of the executive body of the company. 

Absentee voting  

The absentee voting of the participant this right of the participant is considered unambiguously an innovation. The participant has the right in writing to express the will concerning vote concerning the agenda in a general meeting of participants. Authenticity of his signature on such document testifies notarially. The document is added to the protocol of a general meeting of participants and stored together with him. 

Approval of large deal and deal with interest 

The Law on LLC regulates questions of approval of large deal and the transaction with the interested person. Now participants define in the charter of LLC what transactions they have to approve in this or that way. 

Note:  the executive body (director) of LLC guilty of violation of an order of transactions with interest jointly is responsible for the losses caused to LLC.

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