When a foreign company plans to start business in Ukraine, the following legal forms are available: general partnership; limited partnership; added liability company; limited liability company; and joint stock company. Some industries, including banks and insurance companies, are more heavily regulated, and must be established in compliance with specific requirements. A representative office can carry out marketing, promotional, and other auxiliary and preparatory functions on behalf of the company. There is no prohibition for a foreign legal entity to have both a representative office and to establish a wholly-owned subsidiary at the same time. The most common legal forms for conducting business activities in Ukraine are joint stock companies (JSC) and limited liability companies (LLC).
JSCs are very similar in form and operation to U.S. corporations. A JSC is a company whose charter capital is divided into shares of equal par value. Shareholders of a JSC are liable for the latter obligations only to the extent of their respective equity contributions to its charter capital. There are two types of JSCs in Ukraine: open and closed. An open JSC is established through a public offering and subscription of shares, whereas the shares of a closed JSC are distributed privately among the founding shareholders. Shares issued by both open and closed JSCs must be registered with the Ukrainian State Commission on Securities and the Stock Market (the Securities Commission). The shareholders` meeting is the highest governing body, and is responsible for the policy decisions of the JSC. Shareholders` voting rights are based on the principle of one share one vote. Shareholders` meetings require a quorum of more than 60% of all paid shares in order to be duly constituted. Most resolutions are approved by a simple majority of the shares present at a duly convened shareholders meeting; however, the following two fundamental decisions require approval by at least 75% of the shares present: amendments of the charter of the JSC; and liquidation of the JSC. A JSC may create a supervisory board. In a JSC with more than 50 shareholders, the establishment of a supervisory board is required by law.
In choosing between a LLC and a closed JSC in establishing a wholly-owned subsidiary, LLCs appear to be more popular than closed JSCs, due to simpler establishment procedure and less burdensome operation of a LLC.
Representative Offices/Branches Ukrainian legislation provides that representative offices and branches are deemed structural divisions of enterprises, albeit located in localities different from the localities of the headquarters of such enterprises. Neither representative offices nor branches enjoy the status of a separate legal entity. Such structural divisions must act on the basis of regulations adopted by the corresponding governing body of its respective enterprise. The manager of a representative office or a branch must act on the basis of a special power of attorney issued by the management of his/her respective enterprise. The establishment of a representative office or a branch of a Ukrainian legal entity does not require a separate registration. Rather, the Ukrainian legal entity simply needs to notify the appropriate registration authority of the opening of a representative office or branch. The registration body will then enter such additional information into the existing registration card of the legal entity. The recent practice has been to permit a representative office to carry out a wide range of commercial activities (including the signing of contracts and the implementation of import, export and other transactions). Normally, such practices result in the creation of a permanent establishment of such foreign companies in Ukraine for purposes of Ukrainian corporate income tax legislation, and thus the commercial representative office`s activities become taxable in Ukraine. Representative offices of foreign legal entities must be registered with the Ministry of Economy of Ukraine. A one-time registration fee in the amount of UAH 14,977.50 (approximately US$ 2,500 or EUR 2,155) is payable. In practice, foreign legal entities do not carry out their business activities in Ukraine though branches, but rather through either their representative offices registered as permanent establishments, or their wholly-owned Ukrainian subsidiaries, which are usually established in the form of an LLC.
Marketplace UkrRos LLC offers professional, timely and client-focused advice to solve complex legal issues and achieve commercial goals of our clients on a day-to-day basis. Clients trust us, because we enjoy good track record of advising internationally and domestically on a wide scope of commercial transactions and other business issues. Our English-speaking lawyers and attorneys have clear understanding of the needs of our clients and consistently deliver distinctive results. We cooperate with leading commercial enterprises, law firms, NGOs, state and international institutions on a regular basis to solve complicated legal issues of our customers. Our main secret of success is our confidence that professionalism of our personnel with wealth of experience is the main factor in our business. That enables us to provide the very best legal counselling and offer consistently high standards of client service to domestic and international companies. If you need help with establishment of your commercial presence in Ukraine, please go to www.kpl.net.ua.