Crux (#06 June 2013)

Sets and Goals

Corporate law queries used to be bread and butter for law counsels in Ukraine. In addition, this practice area is quite a favorable field for innovations designed by lawyers to meet the needs of clients.

No wonder, that the current discussion panel examines corporate developments and demands.

Oksana Kneychuk, partner, AstapovLawyers

Oksana Kneychuk, partner, AstapovLawyers

What are the latest trends of clients’ requests concerning corporate restructuring? What jurisdictions are most often sought by Ukrainian businesses and why? How did the Cyprus problem affect the choice of such jurisdictions?

Avoidance of an excessive tax burden has historically been one of the most important goals set by Ukrainian businesses in the course of corporate restructuring. Our recent experience shows that in many cases asset protection is becoming a decisive criterion. As a result, while choosing a reliable foreign jurisdiction Ukrainian clients evaluate many factors other than financial criteria. In some cases a choice is made in favor of a reputable holding jurisdiction (e.g. Luxembourg, Hong Kong) having no double tax avoidance treaty with Ukraine.

Due to tax-free repatriation of profits from Ukraine, low level of domestic taxation and absence of withholding tax on passive income distribution, Cyprus has been the most widely used jurisdiction, offering tax effective solutions for holding, trading, financing and licensing companies. European countries that have been extensively used in the past are still quite popular, but their tax efficient use is usually related to certain activities (e.g. the Netherlands, Austria — to holding activities; UK, Switzerland — to trading transactions). Neither have tax-free countries (e.g. BVI, Belize, Seychelles) lost their attractiveness.

However, recent developments in Cyprus have generated a substantial interest in the use of alternative jurisdictions. Such countries as Hong Kong, Singapore, Canada, UAE, Malta and Estonia are becoming increasingly popular, and with proper planning may offer competitive and tax efficient solutions.

Yaroslav Romanchuk managing partner, ILC EUCON

Yaroslav Romanchuk managing partner, ILC EUCON

What are the trends in the development of corporate governance in Ukraine? What are the issues that clients most often approach external legal advisers about?

Business is the property of principals, while the right to run a property is delegated to management. The subject of corporate management is control of execution of corporate activity. A breach of the system of cooperation between owners, shareholders and management of a company as well as other interested persons is the most widespread problem that later forces the owner to turn to external legal counsel.

As a rule, a consequence of the breach of cooperation is the risk of loss of the principal’s assets. So, to concretize generally, the owners of the business and shareholders enlist outside legal advisers for protection of their assets.

It is especially so at present that the objects of attacks are not only material assets, but also non-material ones such as objects of intellectual property right. How to protect assets is not taught in universities as there is no such legal discipline and this legal practice has been formed as a result of working out of a system anti-raiding measures and large long-lasting work on protecting the business and property of foreign investors in Ukraine.

The development of transparent corporate management in Ukraine is restrained by unfavorable state policy.

It occurs when a property is lost with the participation of corrupt officials, representatives of law-enforcement agencies and the courts. It is necessary to take care of assets protection from the moment a business is established, when all is quiet, not as a last resort once “combat operations” have started. Law firms that in a consistent manner take care of issue of asset protection in Ukraine are such protectors of assets.

Igor Reutov, attorney, Gramatskiy & Partners attorneys at law

Igor Reutov, attorney, Gramatskiy & Partners attorneys at law

In practice, how are provisions of the Joint Stock Companies Act implemented in view of protection of minority shareholders’ rights?

The remedies available for minority shareholders in Ukraine are limited to a certain extent. Unfortunately, Ukrainian legislation does not provide regulation for derivative claims or special protection against unfair prejudice, which are at disposal of the minority in other jurisdictions. Nonetheless, the On Joint Stock Companies Act of Ukraine (the Act) offers some definite mechanisms aimed at protecting the interests of the minority. Thus, pursuant to Article 65 of the Act a person (or persons who act jointly) acquiring a majority of the shares amounting to more than 50% are under an obligation to offer sell-out to other shareholders at a price which should not be lower than a fair market price. Such an offer should be made within 20 days after acquisition and contain information about the person who has acquired the majority of shares (i.e. more than 50%), the price of the shares which are subject to buy-out, the last date for giving consent and, finally, the conditions of payment. It should be observed that shareholders are given 30 to 120 days for making their decision as to whether to sell their shares on the conditions stated in the offer. It is worth noting that a fair market price is determined in two ways: for shares issued by quoted companies the fair price is determined according to the price on the stock exchange, whereas the price of the shares issued by unquoted companies is determined by a professional evaluator. The bidder is to pay for shares within 30 days after the receipt of acceptance from minority shareholders.

Alexander Tretiakov, senior lawyer, Antika Law Firm

Alexander Tretiakov, senior lawyer, Antika Law Firm

What are the features of establishment of representative offices and subsidiaries / branches of foreign companies in Ukraine? What are the factors that drive representatives of foreign corporations in choosing a form of their presence on the Ukrainian market?

The procedures of establishing a foreign company’s representative office and subsidiary company differ greatly in Ukraine.

The subsidiary company is established according to the general provisions of any company founding and after several reforms in this field the procedure is relatively simple and transparent.

The registration procedures (including the registration in the tax office) usually takes up to two weeks, but this term may be shortened further in case the founders have prepared all the necessary documents in advance.

Establishing a representative office requires a lot of time nowadays. While the procedure is very simple, the term of registration is 60 working days. The registration fee is also quite significant and comes to USD 2,500.

There are several advantages to a representative office, in particular the possibility of direct financing from the main company. It is also easier to employ foreign citizens to a representative office — the number of foreign employees is set in the registration certificate (total number is three persons, but it can be increased if necessary).

In a subsidiary company a special permit for employment should be obtained for every foreign citizen.

But the main difference which is usually taken into account while considering the form of affiliate in Ukraine is the type of planned activity. Some types of activities (especially the ones that are subject to licensing) can be carried out only by a registered Ukrainian company and are not permitted for perfomance for the representative office.

Roman Drozhanskyi, partner, Volkov & Partners

Roman Drozhanskyi, partner, Volkov & Partners

What are the features of establishment and operation of joint ventures in Ukraine? Can one say that joint ventures are treated equally with business entities of other organizational and legal forms?

Current Ukrainian legislation does not stipulate a separate company form called “joint venture”, so this is rather an economic concept, meaning a company which has a foreign share in its capital. Therefore, there are no specific legal provisions benefiting or limiting the rights of such companies.

From 25 February 2000 all currency control, customs and tax preferences for companies incorporated using foreign investments were quashed.

The only really significant limitation imposed on companies with foreign capital is their inability to own agricultural land plots. There is also a special procedure of purchasing a land plot for such companies. Such purchase will need a prior decision or approval from the Cabinet of Ministers of Ukraine.

The Ukrainian Journal of Business Law

Subscribe to The Ukrainian Journal of Business Law right now and enjoy the most relevant issues on doing business in Ukraine on your device or in print.

All this for just USD 9.99 a month.


Subscribe now