Corporate agreement under Ukrainian law

The practice of using the corporate agreement as a tool for regulation the business relations between the partners was introduced together with the Law “On Limited Liability and Additional Liability Companies” 06.02.2018. A corporate agreement is similar by its very nature to a Shareholders’ Agreement or SHA under the “English law”. But unlike the SHA with its long-established court practice of England and Wales, the corporate agreement under Ukrainian law is just at the beginning of its “business glory”. Therefore, we will briefly cover for you the essential issues with regards to applying the corporate agreement in Ukraine. Please note that this particular corporate instrument applies only to limited liability companies. For governing the joint-stock companies, the Ukrainian legislation provides shareholders’ agreement.

Why you’d need a corporate agreement in Ukraine?

To avoid potential corporate wars with your business partners. Also, you might want to ensure certain predictability for the actions of your companions or just to secure that they will act coherently on important issues for the company.

When can you enter into the corporate agreement?

You can enter into the corporate agreement after the company was being registered. But also, you are not deprived of the option to state in the establishment agreement of your business the provision to enter into the corporate agreement right after the company is registered.

Who can be a party to the corporate agreement?

The corporate agreement can be concluded only between the company’s participants. However, it is allowed to enter into a mixed agreement which will contain the provisions of other agreements that are being allowed under the Civil Code of Ukraine (corporate agreement, credit facility agreement, loan agreement etc.). If this is the case, it is possible for the creditors to be a party to such an agreement.

Special features of the corporate agreement

The corporate agreement is confidential. Unlike the charter, which is contained in the registration file of your company and is required to be provided by the counterparts, the corporate agreement can be disclosed only to the parties of the corporate agreement. The exception to this rule is when the party to the corporate agreement is a state, state company or municipal company.

Any restrictions on entering into the corporate agreement?

The provisions of the corporate agreement shall not be in conflict with the provisions of the company’s charter. It also shall not contain any provisions regarding the obligations for the participants to vote in accordance with the instructions of the management.

What can be regulated by the corporate agreement?

The procedure for buying shares, the procedure for managing the company, the procedure for resolving “deadlock” situations. In addition, you may also regulate issues of pledging shares, exercising rights by the minor and major shareholders. The list of issues is not exhaustive.

Mechanisms for enforcing the corporate agreement

Fine. You may provide in your corporate agreement financial penalties for any breach of the agreement.

Irrevocable power of attorney. You may also issue the irrevocable power of attorney. Under this type of PoA an authorised representative of the party to the corporate agreement is entitled to act in a way that had been earlier provided by the corporate agreement shall the party to the corporate agreement refuse or fail to act accordingly.

Option. The corporate agreement may provide the provision under which one participant will be entitled to buy, and another will be obliged to sell his assets if the latter evade its obligations under the corporate agreement.

It shall also be noted that all agreements that will be subsequently entered by the parties to a corporate agreement in violation of such a corporate agreement will be considered void.

Court practice on the application of the corporate agreement

As of now, the court practice is just being formed, and no decisions of senior courts on the corporate agreement have been delivered yet.

Conclusion

To sum up, the practice of entering corporate agreements will become only more popular as it makes the steps of your partners in business more predictable and coherent. However, only after the senior courts in Ukraine will deliver decisions with a clear legal position on corporate agreements will come the time to say that corporate agreement under Ukrainian law is a common business practice.

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