Ukraine: major features of the new law on joint stock companies
Ukrainian Parliament, the Verkhovna Rada, adopted by 358 affirmative votes the long awaited Law on Joint Stock Companies (the “New Law”). As this voting coincided with political crisis in Ukraine...
On 18 September 2008 Ukrainian Parliament, the Verkhovna Rada, adopted by 358 affirmative votes the long awaited Law on Joint Stock Companies (the “New Law”).
As this voting coincided with political crisis in Ukraine it is to be seen if and when the President of Ukraine and the Chairman of the Verkhovna Rada complete all post-voting procedures required for the Law to come into force.
The New Law shall become effective six months following its official publication, which is expected to occur within 15 days of its execution by the President of Ukraine who must formally receive it from the Verkhovna Rada’s Chairman for review.
FOLLOWING NEW FEATURES INTRODUCED INTO THE CURRENT REGULATION
The New Law introduces the following major novelties to the current regulation of joint stock companies, as provided in the Civil Code of Ukraine, the Commercial Code of Ukraine, and the Law of Ukraine on Business Associations (collectively, the “Current Law”):
(1) Two types of joint stock companies, an open joint stock company and a closed joint stock company, are renamed in the New Law into a public joint stock company and a private joint stock company. The number of shareholders in a private joint stock company may not exceed 100.
(2) The founders of a joint stock company will be required to pay the full value (not 50 percent, as provided by the Current Law) of initially issued shares before convocation of the founding meeting of a joint stock company.
(3) The founding meeting of a joint stock company will need to be held not later than three months (not two months, as provided by the Current Law) after the founders pay for the first share issue in full.
(4) There should be unanimous vote of all founders for adopting resolutions on establishment of a joint stock company (currently 3/4 of the founders` votes is required), on appraisal of in-kind contribution to the capital fund (currently simple majority of the founders` votes is required) and on approval of the joint stock company`s charter (currently 3/4 of the founders` votes is required).
(5) There is a long list of mandatory provisions in the charter of a joint stock company, such as the company’s name, the amount of its capital and the reserve fund, the general information regarding the company’s issued shares, the composition and competence of the company`s corporate governing bodies, etc.
(6) The shareholder`s pre-emptive right to subscribe for newly issued shares is preserved only for shareholders of a private joint stock company (currently shareholders of both open and closed joint stock companies have pre-emptive rights to subscribe for newly issued shares).
(7) The New Law expressly stipulates that shareholders of a private joint stock company do not have pre-emptive right to buy shares transferred to a heir-at-law or a legal successor of a current shareholder.
(8) The joint stock company’s reserve fund shall not be less than 15 percent (currently 25 percent) of its capital fund.
(9) Joint stock company’s shares shall be issued only in non-documentary form (this provision will take effect upon expiration of a two-year period after official publication of the New Law).
(10) Joint stock company’s preferred shares may be now issued in one or several classes providing different rights to their owners.
(11) A joint stock company is entitled to issue shares or bonds with the purpose to convert its obligations into securities.
(12) A public joint stock company is obliged to list its shares and to be registered at least at one stock exchange. On the contrary, shares of a private joint stock company may not be listed.
(13) Dividends may be paid to shareholders only in the monetary form (currently dividends may be paid either in the monetary form or in-kind).
(14) The exclusive competence of a general meeting of shareholders will now include, inter alia, all questions regarding issue of shares and approval of the joint stock company`s internal regulations.
(15) A written notice on convocation of the general meeting of shareholders shall be sent to the shareholders not later than 30 days (not 45 days, as currently required) before the planned date of the meeting.
(16) The general meeting of shareholders shall be held in the city/town where a joint stock company is incorporated (while under unfair interpretation of the Current Law, shareholders of a company have an option to hold a general meeting of shareholders at any place in Ukraine), unless a joint stock company is a wholly owned subsidiary of a foreign parent, including an international organization or a stateless person.
(17) Voting at the general meeting of shareholders of a joint stock company with more than 100 shareholders shall take place only by means of voting bulletins signed by a shareholder or shareholder’s proxy.
(18) If there are not more than 25 shareholders in a joint stock company, they may adopt resolutions by polling in lieu of the general meeting of shareholders (the Current Law does not provide for such option).
(19) A supervisory council in a joint stock company is mandatory, if there are 10 or more (50 or more under the Current Law) shareholders.
(20) The supervisory council’s exclusive competence is significantly increased to include, inter alia, placement and buy out of the company`s securities other than shares, election and recall of the head and members of the executive and other corporate bodies of the company, and various issues regarding general meeting of shareholders.
(21) The New Law introduces a position of the corporate secretary of a joint stock company who is elected by the supervisory council and is in charge of the company’s relations with shareholders and third parties..
(22) The New Law introduces the notion of a “significant contract” of a joint stock company defined as its contract valued at more than 10 percent of the company’s assets, provided that conclusion of a significant contract with the value up to 25 percent of the company’s assets requires a preliminary approval of the supervisory council (if established), conclusion of a significant contract with the value from 25 to 50 percent of the company’s assets must be approved by a simple majority of the shareholders’ votes at a general meeting of shareholders, and a significant contract exceeding 50 percent of the company’s assets must be approved by 3/4 of the shareholders’ votes at a general meeting of shareholders.
(23) An acquirer of 10 or more percent of the capital fund of a joint stock company shall notify a joint stock company and the State Commission on Securities and Stock Market of Ukraine at least 30 days prior to the anticipated acquisition.
(24) An acquirer of 50 or more percent in the capital fund of a joint stock company shall (a) within 20 days from the acquisition date send to all other shareholders a public irrevocable offer to purchase their shares and (b) send an acquisition notification to the State Commission on Securities and Stock Market of Ukraine and the stock exchange where joint stock company’s shares are listed.
(25) A shareholder may demand that a joint stock company buy out this shareholder’s shares, in case of a general meeting of shareholders’ decision on (a) the reorganization of a joint stock company, (b) the change of the capital fund, and (c) entering into a significant contract, provided that this shareholder voted against the respective decision.
(26) Joint stock companies with up to 100 shareholders may elect a sole auditor, while in other cases election of an audit committee is mandatory.
(27) The New Law provides for certain simplified corporate procedures in joint stock companies with one shareholder, e.g., there is no necessity to execute the founders` agreement or to comply with the general procedure on convocation and holding of the general meeting of shareholders.
Under the Law, charters and internal regulations of existing joint stock companies shall be made compliant with the new requirements within two years of its effective date.
ANALYSIS: By Armen Khachaturya, Partner, Asters and Asters law firm legal team, Kyiv, Ukraine U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, September 24, 2008
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, September 24, 2008
FOOTNOTE: Asters law firm is a member of the U.S.-Ukraine Business Council (USUBC). Asters was established in Kyiv, Ukraine in 1995 by two partners - Igor Shevchenko and Oleksiy Didkovskiy - and bore their names for 12 years, Shevchenko Didkovskiy & Partners. Shevchenko Didkovskiy & Partners announced on February 21, 2008 that it changed its name to Asters. Today, with 9 partners, more than 70 lawyers and 110 employees, Asters is one of the largest Ukrainian law firms.
Action Ukraine Report (AUR) Monitoring Service