Weaknesses of the new law and risks for the owners of the LLC

A new law on limited liability companies and additional liability dated February 6, 2018, № 2275-VIII will come into force on June 17, 2018. Besides the wide opportunities for founders of companies, the law may have negative consequences.

We have already written about the main news of the law here.

Now, we want to focus on possible negative consequences and risks that the law may bring.

Of course, it is difficult to predict the regulatory impact of a law that has not yet entered into force. However, it is necessary to calculate the possible risks and methods of protection.

One of the main issues causes a different assessment is the reduction of the list of mandatory information in the company’s charter. The new law requires the charter to specify only the name (full and abbreviated), the list of authorities (their authority and procedure for making decisions), as well as the procedure of joining and withdrawal.

The list of participants and the size of their shares will no longer be specified in the charter.

This allows specify a minimum information and simplifies the procedure for changing the details of a legal entity. It will not be necessary to approve the new edition of the statute every time.

According to some experts, the narrowing of the list of mandatory information allows to include in charter disputed provisions that can be used by unscrupulous business partners in the future to seize control over the company.

Ambiguous assessment is caused by corporate agreements, which do not require notarization and are vulnerable to falsification.

In addition, the new law does not require notifying the company about conclusion of such an agreement.

Irrevocable power of attorney – another innovation, which can have risky consequences. It has already been provided by current legislation and remains in the new law. If something goes wrong, canceling of such power of attorney is impossible.

The new law does not sufficiently regulate the procedure for withdrawal of a participant who has less than 50% in the authorized capital. Thus, the law states that there is no need to obtain an agreement of general meeting. The participant is deemed to have withdrawn since the state registration of the changes.

Accordingly, if a participant lodges an application for a state registrar, there will be no grounds for refusal to register the actions under the new law. However, it is not clear how to reduce the share capital and pay the share value.

If the state registrar refuses to register, will it be legitimate?

The above procedure may be detailed in the company’s charter, however all known cases of “rewriting” of the law in the statute. Therefore, there are no guarantees of a sufficient settlement of this issue.

Since LLC is one of the most widespread forms of business in Ukraine, innovations and legal risks will have a significant impact on the activities of such legal entities.

It is important for the founders of the companies to be attentive in the new legislative realities and not to neglect the services of lawyers when drafting the statute, making changes to it and preparing other documents.

Whether the new law will become a step forward in improving business or cause more threats and raider hunts will show time.

Nevertheless, it is better not to make a charter in terms of maximum protection from conflicts in the future, to consolidate clear terms it in, to analyze in detail the corporate agreements and to certify them at notary office.

The fee for the qualitative preparation of documents and their notary certification is nothing against those risks of negligence when registering your business. In the future, more and more money will be spent for protecting your rights and legitimate interests in the courts.

Our Lawyers can make qualitative preparation of documents for business registration taking into account all your wishes. This will help you to avoid ambiguity in the constituent documents and minimize conflicts between founders in the future.