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Doing Business in Ukraine

Forms of Business Organisation

Establishing a legal entity in Ukraine involves registering with the local state registrar, the tax authorities, the statistics office, and various pension and social funds, as well as opening a bank account and other formalities.

From a foreign investor's perspective, the choice will tend to be either a LLC, a JSC, or in limited circumstances a representative office engaged in either commercial or non-commercial activities.
For a 100% investment, using a LLC tends to be more convenient. It is easier and quicker to establish, has lower minimum capitalisation requirements (approximately $9,000), and is less regulated.

One potential issue with a LLC is that members may withdraw their contributions at any time by giving three month's notice. If another investor will be involved in an entity, establishing a JSC (or establishing a JV entity offshore) may be more prudent.

If an investor intends to carry out only preparatory or auxiliary activities in Ukraine, such as representation, information gathering and liaison activities, establishing a non-commercial representative office is a viable and convenient option, provided there is double tax treaty protection.

It is not possible for foreign entities to conduct full commercial activities (executing contracts, selling and accepting payments for goods, etc.) through a commercial representative office. Nonetheless, a number of law firms and other service providers have established their presence in Ukraine in this manner.

According to the law, if the value of a company's net assets at the end of the second and subsequent financial year is less than its share capital, the company must decrease its share capital and make relevant amendments to its Charter. There is no provision for a JSC to increase its capital to achieve this objective.

Furthermore, the law states that if the value of net assets falls below the statutory minimum capital, the company should be liquidated.

There is no further clarification in respect of these articles, no explanation as to who may enforce the provisions, and no major penalties for non-observance. The Securities Commission has recently indicated that JSCs (particularly banks and insurance companies) may need to follow the rules more strictly.

Limited Liability Companies

A Limited Liability Company (LLC) does not have shares in a traditional sense. Instead, participants in a LLC own a percentage in the company's capital, as specified in its Charter.

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