It is provided by current legislation that one, being either citizen of Ukraine or foreign individual, national or foreign legal entity may conduct business in Ukraine by establishing a legal entity of any type either independently or in a partnership.
There are several types of corporate organization used as a vehicle for incorporation of a company or its representative office in Ukraine, namely:
- joint stock company;
- limited liability company;
- representative office.
It is also allowed to incorporate the additional liability companies, full liability companies and ‘kommandit’ partnerships. However, these types of legal entities are seldom used in practice (except for the cases when the law prescribes incorporation of a company in the one of the abovementioned forms) because the shareholders of such companies are responsible for the liabilities of the company, which are NOT restricted up to the value of their shares.
Hereby we’ll shortly provide the general characteristics of companies mentioned above, as well as comparative analysis of advantages of different types of companies.
All types of companies are incorporated by the shareholders. The company should have a minimum of one shareholder (except for a full liability companies and kommandit partnerships), who may be either resident of Ukraine or foreign individual, national or foreign legal entity. Company’s capital fund consists of the shares of the shareholders. The shareholders can make contributions to the company’s capital fund by money, securities, property and in other material forms, which could be estimated. Contributions are estimated in Ukrainian currency – Hryvnia (UAH).
The company should be named in Ukrainian. The name should include the type of legal entity (Limited Liability Company, Closed Joint Stock Company, Enterprise etc.), after that comes the name of the company itself. The name of the company should be agreed and reserved with the State registry body beforehand.
The registered office of a company should be maintained in Ukraine. The Company should have a minimum of one Director. The Accountant shall be responsible for the book-keeping and liaising with the tax department. The legislation has no restrictions as for the quantity of the officials mentioned above.
The company is permitted to open bank accounts in foreign and local currencies in Ukrainian banks. The company can enter into agreements, acquire, use and alienate property, be a plaintiff and defendant in court, use and dispose its funds and assets according to the purposes and objectives of its activities, and enjoy all rights of legal entity under the current Ukrainian legislation.
The company can choose one of the taxation systems acting in Ukraine: either joint taxation system or simplified taxation system. Joint taxation system includes income tax (25%), VAT tax (20%), assignments to the social insurance fund, innovation fund, pension and other funds, local taxes. Each tax is to be paid separately.
The simplified taxation system combines all the taxes mentioned above into the one unified tax with the application of one of the following tax rates:
(I) either 6% of revenue, plus additionally VAT;
(II) or 10% of revenue (VAT is included to the unified tax).
It should be noted that the simplified taxation system could be applied only to the companies with no more than 50 employees per year, and earnings received from realization of goods and services that do not exceed 1 million UAH (about 200 000 USD) per year.
A joint stock company’s (JSC) capital fund is divided into the definite number of shares of equal nominal value. A shareholder is responsible for the liabilities of the entity only up to the value of his shares. The minimum capitalization requirement of a JSC is equivalent to 1,250 minimum salaries, based on the rate of minimum salaries effective at the time of the company incorporation. Currently the size of the JSC capital fund approximately amounts to 65.500 USD.
A JSC may be either ‘open’ (publicly held) or ‘closed’ (privately held).
(I) The shares of an ‘open’ JSC can be bought/sold on the stock exchange or distributed through open subscription. Shareholders of the ‘open’ JSC can alienate their shares without consent of other shareholders;
(II) the shares of a ‘closed’ JSC are divided among the founders and cannot be bought/sold on the stock exchange or distributed through open subscription. Shareholders of a ‘closed’ JSC have the right of priority to take up the shares, which have been alienated by other shareholders.
A JSC can issue securities in compliance with the requirements of the State Commission for Securities and Stock Market.
The capital fund of a Limited Liability Company (LLC) is divided into shares. The Statute of a Company determines value of shares. Participant of the LLC is responsible for the liabilities of the LLC only to the extent of his capital contributions. There is a lower initial capital requirement of 100 minimum monthly salaries, based on the rate of minimum salaries effective at the time of the company incorporation. Currently the size of the LLC capital fund approximately amounts to 5,240 USD. Each participant should pay at least one half of his contribution in the authorized capital before an LLC is registered with the State agency. The contribution must be paid in full within one year since the registration date.
While choosing between JSC and LLC one should keep in mind that their legal status and nature are almost the same. The only difference lies in the statutory amount of the capital fund and structure of governing bodies:
There are 4 governing bodies for the JSC:
- Shareholders’ assembly
- Supervisory Board
- Board of Directors
There are 2 management bodies for the LLC:
- Participants’ assembly
- Board of Directors
The main disadvantage of the Joint Stock Companies is the legal regulation of the securities turnover (reporting system, registration in the State Commission for Securities and Stock Exchange) as far as it takes a lot of time and may often prevent the company from the normal activities. (Plus the requirement for the higher amount of Capital Fund than in LLC case)
An enterprise is also a popular form of corporate organization. An enterprise can be founded by one or several founders. The founders approve the charter of an enterprise, appoint the governing bodies and Director, take decisions and exercise full control over the enterprise’s activity. The main advantages of an enterprise are as follows: (I) there is no minimum capitalization requirement and order of its payment, (II) an enterprise is responsible for its liabilities only to the extent of its assets (III) there are no special demands regarding the corporate management of an enterprise. Thus such form of a company is rather popular in Ukraine.
No less popular is incorporation of a subsidiary. The legal status of a subsidiary is equal to the legal status of an enterprise, except of the fact that subsidiary has just one founder, who has some additional responsibility to the creditors in case of bankruptcy caused by the founder’s fault.
Another form of corporate organization is opening of a branch or a representative office . Companies set up the representative offices and branches in Ukraine to represent their interests and exercise activities of the company. A branch or a representative office do not have the status of a legal entity, being just structural subdivisions thereof. Representative offices and branches are permitted to open a bank account in Ukraine. Branches and representative offices are incorporated on the basis of the maternal company’s property, and act under the regulations, approved by the founder. The maternal company nominates the Director, who acts under the power of attorney. It is not required to obtain the state registration for incorporation of a branch or representative office, in this case the founder just informs thereabout the State Registry office. If a foreign company sets up its representative office in Ukraine, it shall obtain the state registration in the proper order under the current Ukrainian legislation.
As for the registration fee for all types of companies (except of representative office of foreign company) it is equal to 10 non-taxed minimum monthly salaries, based on the rate of minimum salaries effective at the time of the company incorporation. Currently the size of the minimum monthly salary approximately amounts to 170 UAH (about 34 USD). Cost of the constituent documents notarization depends on the type of a company and cost of the notary services.
State registration can be achieved within 10 days from the date of submitting the documents with a Registration office, but it typically takes no less than 1 month to duly prepare and notarize the constituent documents, open a bank account, make an assessed contribution, register with the tax authorities and other state funds. In case of incorporation of a Joint Stock Company, it is necessary to file the necessary documents with the State Commission for Securities and Stock Market.
The ICSGroup’s Kyiv Office is able to provide consultations and assistance in the incorporation of all types of companies in Ukraine, as well as providing full legal support services, both for corporations and individuals.