When a foreign company or an individual plans to establish a business presence in Ukraine there is a number of options that can be used. The main forms of business presence that are most commonly used by foreign investors in Ukraine are joint-stock companies (share corporations), limited liability companies and representative office. There are other options available under the Ukrainian legislation such as partnerships, limited partnerships, additional liability companies and non-corporate joint activities which are used less frequently.

The main laws which govern the establishment and activity of legal entities in Ukraine are the Civil Code, the Commercial (Economic) Code and the Law on Companies. It is expected that in the near future a special law on joint-stock companies (share corporations) will be passed

Founding and registration

Companies in Ukraine may be founded by Ukrainian and/or foreign legal entities, Ukrainian citizens as well as foreign citizens and individuals without citizenship. A company acquires the status of a legal entity after its state registration.

Companies are established and act on the basis of their founding documents (charter or foundation agreement). The foundation documents should contain information on the name of the company, subject and purposes of its activity, information about the founders and participants, amount of the chartered capital, procedure of profit and loss distribution, management structure and competence, procedure of adopting decisions by governing bodies, procedure of amending the founding documents, procedure of liquidation of the company, as well as other issues specifically defined for certain companies depending on their organizational form.

Joint-stock companies (share corporations), limited liability companies and additional liability companies act on the basis of charters and partnerships act on the basis of a founding agreement. Although conclusion of the founding agreement is not obligatory for the companies of these organizational forms as mentioned above, the founders of such companies may conclude the founding agreements in order to establish the procedure of making contributions to the chartered capital, set conditions of their joint activity on foundation of the company, etc.

Contributions to the chartered capital

Founders can make their contributions to the chartered capital of the company in the form of monetary contributions and in the form of in-kind contributions, e.g.:

1. Constructions and buildings;
2. Equipment and other tangible values;
3. Securities (except for promissory notes);
4. Rights of possession of land, water, and other natural resources; and
5. Other property rights (including intellectual property rights).

The Land Code prohibits the contributions of land rights to a company's chartered capital until January 1, 2007. The use of budget funds, borrowed funds or pledged property in the formation of chartered capital is also prohibited.

Termination and liquidation

Companies may terminate their activity by way of reorganisation (merger, takeover, division, transformation) or by way of liquidation. In the case of termination of a company, its property, rights and obligations are transferred to its legal successors. A company may be liquidated based on (i) decision of the participants/shareholders or (ii) court decision. Upon liquidation of the company, the creditors' demands (if any) are satisfied in the order established by the Ukrainian legislation. The property which is left after settlement of the creditors' demands is distributed among its participants in the order provided by its foundation documents.

Joint-stock company (share corporation) (Ukr.: Aktsionerne tovarysrvo – AT)

A joint-stock company is a company with chartered capital divided into a certain number of shares of definite equal nominal value. Shareholders are liable for the company's commitments only within the limits of their shares (i.e. shareholders would not be required to make any other contributions besides contributions to the chartered capital and would not be liable for the commitments of the company).

The chartered capital of a joint-stock company cannot be less than the amount equal to 1,250 minimum salaries based on the minimum salary rate effective at the moment of the company's establishment. Currently, the minimum monthly salary is UAH 350 [effective as of January 1, 2006], therefore the chartered capital of a joint-stock company cannot be less than UAH 437,500 (approximately USD 87,000).

The Law on Companies provides for two types of joint-stock companies, namely:

• Open (public) joint-stock company (Ukr.; Vidkryte aktsionerne tovarystvo – VAT), the shares of which are distributed through an open subscription and may be circulated on the stock exchange; and
• Closed (private) joint-stock company (Ukr.: Zakryte aktsionerne tovarystvo – ZAT), the shares of which are distributed between the founders and cannot be distributed through an open subscription or circulated on the stock exchange.

The joint-stock company is governed by the following bodies:

• General meeting of shareholders, which is the company's highest body;
• Supervisory council, which represents the interests of shareholders between general meetings and controls the executive body;
• Board of Directors and/or General Director, which is the executive body governing the company's day-to-day activity;
• Audit committee, which controls the financial and business activity of the executive body.

Limited liability company (Ukr.: Tovarystvo z obmezhenoiu vidpovidal’nistiu – TOV)

A limited liability company is a company with its chartered capital divided into participatory shares, as determined by the founding documents. Participants in the company are liable only for the amount of their contributions, i.e. participants bear the risks related to company's activity only within their contributions. The participant which systematically breaches its obligations to the company may be excluded from the company if other participants holding more than 50% of the total amount of votes vote in favour of such a decision.

The chartered capital of a limited liability company should be not less than the equivalent of 100 minimum salaries based on the minimum salary rate effective at the time of company's establishment, which is UAH 350 as of January 1, 2006. Therefore the chartered capital of a limited liability company cannot be less than UAH 35,000 (approximately USD 7,000).

A limited liability company is governed by the following bodies:

• General meeting of participants, which is the company's highest body;
• Board of Directors and/or General Director, which is the executive body governing the company's day-to-day activity;
• Auditing committee, which controls the financial and business activity of the executive body.

Additional liability company (Ukr.: Tovarystvo z dodanoiu vidpovidal’nistiu – TDV)

An additional liability company is a company with chartered capital divided into participatory shares as determined by company's founding documents. Participants primarily become responsible for the com¬pany's commitments to the extent of their contributions to the chartered capital. However, if these sums are insufficient, participants shall bear additional liability pro rata to each participant's contribution. The limits of such liability of participants are provided in the foundation documents.

The Law on Companies provides for the same requirements regarding the minimum amount of the chartered capital of additional liability companies as of the limited liability companies.

General partnership (Ukr.: Povne tovarystvo – PT)

A general partnership is a company where all participants are jointly engaged in company's business activity and are jointly responsible for the company's obligations with all of their property.

The general partnership is managed according to the founding agreement of the partners. Activity of the general partnership may be carried out either by all, one or some of them who act on behalf of the partnership on the basis of the power of attorney issued by other partners.

Limited partnership (Ukr.: Komandytne tovarystvo – KT)

A limited partnership is a company in which one or more participants carrying out business activity on behalf of the partnership are held jointly responsible with all their property for the partnership's commitments (general partners), while the responsibility of the remaining one or more participants which do not participate in the activity of the company is limited to their contribu¬tions to the chartered capital of the company (limited partners).

In a limited partnership, only the general partners carry out the management of the partnership. Limited partners may not interfere with the activity of the general partners in the management of the partnership. A limited partnership must terminate its activity when all general partners withdraw from the company.

Representative office (Ukr.: Predstavnytstvo)

A foreign company may set up a representative office in Ukraine. A representative office is not a legal entity under the Ukrainian legislation and therefore it acts for and on behalf of the foreign founder.

In practice representative offices of foreign companies may be of two types: a representative office through which a non-resident entity carries out its business activity in Ukraine (which is rather a branch from the legal view) and a representative office whose functions are generally limited to representing the interests of a foreign company, performing marketing activities, and performing other support functions to promote the business of its foreign founder. Representative offices are subject to registration with state authorities as provided by Ukrainian legislation.

Non-corporate joint activity

Non-corporate joint activity is one of the possible options provided for by the Ukrainian legislation for conducting business in Ukraine. Joint activity is carried out via a contractual joint venture organized by a combination of funds or assets of participants or without combination of contributions in order to achieve joint business objectives. The joint activity does not have the status of a legal entity; there is no requirement for a minimum amount of capital to be contributed by the participants. The conditions of carrying out the joint activity are established by a written agreement among its participants. Joint activity is subject to registration with state authorities as provided by the Ukrainian legislation.