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Practice Areas Review: Mergers & Acquisitions

Acquisition of Companies in Ukraine



Associate, Avellum Partners


Avellum Partners

Leonardo Business Center, 19-21 Bohdana Khmelnytskoho Street, Floor 11,
Kyiv, 01030, Ukraine
+380 44 220 0335
+380 44 220 0335

Avellum Partners is a leading Ukrainian transactional law firm specialising in corporate finance and covering banking and finance, capital markets, competition, corporate matters, customs, dispute resolution, mergers and acquisitions, real estate, restructurings and tax.

Avellum Partners’ associates help foreign and Ukrainian investors to close complicated corporate finance transactions successfully and promptly. They reach this goal using the most advanced Western methods and practices coupled with broad experience in Ukraine and everyday practice.

Avellum Partners specialise in matters that require special attention, extensive experience and industry expertise, a high level of sophistication, and the reputation of its partners. The firm offers its clients an intense and highly individualised focus on their matters.

Avellum Partners’ associates are client dedicated. They provide prompt and thorough responses to the requests of clients and strive to meet and when possible surpass deadlines.

With the utmost commitment to the principle of legality Avellum Partners always search for practical and unique business-oriented solutions for its clients.

Avellum Partners offer its clients a highly individualised focus on their matters, with precise understanding of tasks, regular reporting on assignment status and a comprehensive approach in providing information.

Avellum Partners work seamlessly with the correspondent/partner premier law firms in other jurisdictions, including the UK, the USA, and EU jurisdictions.

Avellum Partners meticulously select and train employees to make sure that each of the attorneys could become a partner in the future. The firm’s employees received their education from the top Ukrainian and Western universities and are admitted to practice law both in Ukraine and abroad. The team consists of 19 highly qualified attorneys trained according to the highest standards, including three Western-educated partners — Glib Bondar, Kostiantyn Likarchuk and Mykola Stetsenko.

Avellum Partners is recognised as one of the top corporate finance law firms in Ukraine by various international legal directories and Ukrainian legal publications. The firm was named Ukrainian Law Firm of the Year in 2012 according to Chambers & Partners, which publishes the leading directories of the legal profession.

Avellum Partners’ clients include international and domestic companies, investment funds, and investment banks seeking specialised legal advice and transactional skills from legal experts in the above practice areas.

Managing Partner: Mykola Stetsenko.

Number of Partners: 3.

Number of Associates: 16.

Languages: English, Ukrainian, Russian.

1. General Overview

The most common vehicles for conducting business activities in Ukraine are limited liability companies (an LLC) and joint stock companies (JSC), both of which are based on the concept of limiting the liability of the owners of the company.

Legislative framework in Ukraine for acquisition of companies established in the form of LLC consists mainly of the Civil Code of Ukraine of 16 January 2003, the Commercial Code of Ukraine of 16 January 2003, and the On Companies Act of Ukraine of 19 September 1991.

Acquisition of a JSC is also regulated by the On Joint Stock Companies Act of Ukraine of 17 September 2008 (the Joint Stock Companies Act) and the On Securities and the Stock Market Act of Ukraine of 23 February 2006, which establish specific legal limitations, aimed at protecting minority shareholders and the higher control of securities trading.

There is neither a specific legal act regulating public takeovers in Ukraine, nor a specific procedure for public takeovers aimed at obtaining control over a target company.

For the purposes of this article, the owners of (i) an LLC are referred to as “participants” owning “participatory interests” and (ii) of a JSC are referred to as “shareholders” owning “shares”.

2. Restrictions

Acquisitions of both an LLC and a JSC are restricted as follows:

(a) a company may not have a sole shareholder which is, in its turn, a wholly-owned subsidiary of another company or individual (either foreign or Ukrainian). This restriction is enhanced in the Joint Stock Companies Act to the effect that a JSC cannot be owned by shareholders that are legal entities with one and the same sole shareholder;

(b) an individual or a company (either foreign or Ukrainian) cannot be the sole participant in more than one LLC in Ukraine;

(c) a company which is wholly owned by a foreign company may not own land in Ukraine; and

(d) the maximum number of participants of an LLC may not exceed 100 legal entities or individuals. Those LLCs, which are established by less than 100 participants, and later expand to more than 100 participants, must be mandatorily reorganised into a JSC within one year. Failure to comply with this reorganisation requirement or to decrease the number of the participants to 100 or less may result in court termination of an LLC.

3. Acquisition of LLC

To transfer title to participatory interests in the charter capital of an LLC, the following steps must be performed:

(a) the other participants of the LLC waive their pre-emptive rights and the selling participant’s spouse grants her/his consent (if needed);

(b) the seller and the purchaser execute a sale and purchase agreement (the “SPA”);

(c) non-selling participants and the purchaser sign a restated charter of the LLC and the general participants’ meeting approves the same; and

(d) the state registrar registers the amended charter of the LLC.

Each of these steps is described in detail below.

3.1. Pre-emptive Rights of other Participants of LLC

Under Ukrainian law, a participant willing to dispose of  its participatory interest in the charter capital of an LLC must comply with pre-emptive rights (right of first refusal) of the other participants according to the procedure described below.

The participant who wants to dispose of the participatory interest must, before it disposes its participatory interest, serve a notice on the other participants of the LLC on its intent to sell the participatory interest and terms of the disposal proposed to the selling participant by a third party. Upon receipt of such notice, the other participants may offer to buy the participatory interest by a notice within a month or other period specified in the charter of the LLC.

If the selling participant receives no offer from the other participants within the above-mentioned period (or if they waive their pre-emptive rights), then the selling participant may proceed to sell its participatory interest to the third party on terms not better (for the purchaser) than those offered to the other participants.

3.2. Spousal Consent

Under Ukrainian law, any property, including participatory interests in the LLC, which was acquired by the person during marriage is deemed to be in the joint ownership of spouses. If any transaction in respect of such property is performed without the consent of the spouse, the spouse may challenge such transaction1. Therefore, we recommend that the parties to the transaction ensure that such consent is obtained.

3.3. SPA

There are no special legislative requirements to the form and essence of the SPA. We recommend that the SPA is concluded in written form and certified by the notary and specifies at least the details of the target LLC, sold participatory interests, sale price, terms of payment, obligations of parties on transfer of title to the purchaser and the moment when the legal title to the participatory interest passes to the purchaser.

There are also no specific legal requirements as to the sale price. Nevertheless, there are two limitations that should be taken into account:

(a) the sale price must not be lower than the sale price offered to the other participants; otherwise the transaction may be challenged; and

(b) the sale price should not be lower than the nominal (par) value of the sold participatory interest; otherwise there is a risk of negative tax consequences.

A participatory interest may be sold only in the amount it is paid up. For this reason it is extremely important to ensure that the sold participatory interest is fully paid up before it is transferred to the purchaser.

3.4. Restated Charter

Title to the participatory interest is transferred on the date agreed by the parties in the SPA. However, to fully perfect such title, the general participants’ meeting should approve a restated charter of the LLC indicating the purchaser as the participant of the LLC. After this, the restated charter must be submitted to the state registrar for registration, which is usually done within one business day.

4. Acquisition of JSC

Unlike an LLC, title to the shares in a JSC is transferred when the shares are credited to the purchaser’s securities account opened with a Ukrainian custodian. Legislative requirements to acquisition of shares in public and private JSCs have some differences.

Generally, acquisition of shares in a JSC consists of the following steps:

(a) the other shareholders of a private JSC waive their pre-emptive rights and the selling shareholder’s spouse grants her/his consent (if needed);

(b) the seller or purchaser execute an agency agreement with a securities broker;

(c) the purchaser notifies the JSC and the National Commission for Securities and the Stock Market (the Securities Commission) on acquisition of a substantial share;

(d) the seller and the purchaser execute the SPA; and

(e) if the purchaser acquires a controlling (over 50%) share in the JSC, it proposes purchase to the minority shareholders of their shares.

Each of these steps is described in detail below.

4.1. Pre-emptive Rights and Spousal Consents

There are no pre-emptive rights of the other shareholders of a public JSC.

Under Ukrainian law, the charter of a private JSC may provide for the pre-emptive right of other shareholders to acquire shares of the shareholders willing to dispose of them. The procedure for the exercise of this right in a private JSC is, in general, similar to the one provided for LLCs and described in paragraph 3.1 above.

The same recommendations as are given in relation to spousal consent for the sale of a participatory interest apply to a sale of shares in a JSC (see paragraph 3.2 above).

4.2. Agreement with Securities Broker

Under Ukrainian law, generally, a securities broker must be engaged for any sale of any securities, including shares. Therefore, prior to entering into the SPA, the purchaser or seller must conclude an agency agreement with a securities broker.

4.3. Notification of Securities Commission on Acquisition of Significant Share

Under Ukrainian law, if a purchaser acquires shares representing 10% or more of the ordinary shares in a JSC, such purchaser must (i) notify the JSC of this itself and the Securities Commission and (ii) publish this notification in the official newspaper. The purchaser must perform the above actions not later than 30 calendar days prior to the planned date of the acquisition.

Notification must include information on the amount, type and class of purchased shares in the JSC.

4.4. Execution of SPA

The SPA should (i) be concluded in written form with the participation of a securities broker on behalf of at least one of the parties (usually the purchaser) and (ii) specify at least details of the target JSC, sold shares, sale price, terms of payment and obligations of parties on transfer of title to the purchaser.

4.5. Offer to Minority Shareholders to Purchase their Shares

Under Ukrainian law, if a person acquires shares in a JSC and following such acquisition its stake exceeds 50% of the ordinary shares in the JSC, such person within 20 calendar days must propose purchase to the other shareholders of their shares. The terms on which such offer must be made are provided for in the Joint Stock Companies Act and the charter of the JSC.

1 Judicial practice in respect of this matter is not uniform and, if a liberal approach is taken, no spousal consent is required for sale by an individual of his/her participatory interest. However, to be on the safe side, we still recommend obtaining such consent.