Acquiring a stake in a Ukrainian limited liability company (LLC) requires careful preparation. Typically, the process begins with legal due diligence to identify potential risks for the investor. The next stages involve preparing transaction documents, submitting transfer of undertaking notifications, obtaining approvals from state authorities and other LLC participants, and ultimately registering the new participant, ultimate beneficial owner (UBO), and ownership structure in the Ukrainian corporate register. Each step in this sequence has important specifics to note.
Conducting legal due diligence
Before investing in the Ukrainian LLC, it is necessary to conduct legal due diligence to check, among others, the most common risks affecting the ownership and corporate rights of the new participant, including the following:
- Unpaid charter capital and purchase price
Generally, the sale of the LLC's stake is permitted only after the seller has made full payment of their charter capital contributions.
Further, according to Ukrainian court practice, the buyer should exercise reasonable caution and investigate the history of the stake's disposal by previous owners for at least the last three years, which is a standard business practice.
In view of that, the buyer should secure confirmation of proper payment of the purchase price in previous transfers and identify any third parties who may have grounds to challenge the transaction.
- Violation of the pre-emptive right
Generally, the sale of a stake in the LLC is subject to compliance with pre-emptive right procedures, meaning that existing participants have the first opportunity to purchase the stake before it is offered to third parties. If these procedures are violated, the participant whose rights were infringed may demand in court that the rights and obligations of the buyer of the stake be transferred to them.
During such due diligence, special attention is also devoted to determining whether the deal falls under Ukrainian tax rules for a real estate-rich company. These rules apply to certain indirect sales by non-residents of Ukrainian assets, including corporate rights in an LLC, and trigger the non-resident buyer's obligation to register with Ukrainian tax authorities and pay withholding tax on the purchase price.
Preparing transaction documents
The key document in purchasing the LLC's stake is the sale and purchase agreement, which terms depend on the deal's circumstances and specifics. Besides the agreement, several other documents must be prepared:
The "transfer-acceptance act" is a legal document that records the transfer of ownership over the stake, including details such as the stake's size and the moment of title transfer. This act is required for the state registration of the buyer as a new participant of the LLC in the Ukrainian corporate register.
- Consents and approvals from LLC's participants
In addition to the pre-emptive right, the LLC's charter may stipulate that share alienation is permitted only with the consent of other participants or impose other restrictions on transferring equity. Similar conditions may also be included in corporate agreements, which should be reviewed as well.
If the seller is married, the spouse's properly drafted and formalized consent to the sale of the LLC stake is required. Without it, the spouse may attempt to prove the buyer acted in bad faith and seek to invalidate the sale and purchase agreement in court. Additional legal consequences may also arise, depending on the circumstances, such as the existence of a marital contract between the spouses.
It is not necessary for the foreign investor or its representatives to travel to Ukraine in order to sign the transaction documents. They may be signed by a local representative, typically legal counsel, acting pursuant to a power of attorney that has been apostilled abroad.
Obtaining regulatory clearances
To complete the share purchase transaction, a clearance of the Antimonopoly Committee of Ukraine may be required.
Business permits and registrations of the LLC should generally not be affected by changes in participants. However, this needs to be verified, depending on the type of business activity the company conducts.
Making TUPE notifications
Recently, Ukrainian legislation introduced an obligation for employee consultation in cases of transactions qualifying as a transfer of an undertaking.
The consultation obligation requires both the seller and potential buyer of participatory interests to: (i) inform employees of the target entity about planned ownership changes and resulting employment consequences at least 10 business days before the transaction, and (ii) consult with employees upon request regarding these employment consequences.
State registration
After signing the sale and purchase agreement and preparing the necessary documents, changes to the LLC's participant information must be registered with the Ukrainian corporate register. The person who acquired the stake, or their authorized representative, applies to the state registrar and submits:
- a standard-form application;
- a document confirming payment of the administrative fee;
- the transfer-acceptance act regarding equity interest; and
- the LLC's ownership structure.
Other documents may be required, in particular if the new participant is a foreign legal entity or individual.
UBO change
If an equity transfer changes the individual with decisive control over the LLC, the UBO information must be updated by submitting the new ownership structure and other necessary documents.
Identifying the UBO and preparing the ownership structure are complex, time-consuming procedures requiring thorough analysis and the collection of documents abroad.
Failure to disclose new UBO and ownership structure is risky. If state authorities, banks, or other financial institutions identify outdated or inaccurate information, they must notify the Ministry of Justice of Ukraine, which will then initiate an official investigation to remove such information from the Ukrainian corporate register. This removal may complicate LLC's operations, such as bank transactions, VAT refund, or the use of business permits.
Summary
Acquisition of a stake in a Ukrainian LLC requires several steps beyond just signing a sale and purchase agreement. It starts with legal due diligence to identify potential risks to the investor's ownership, such as unpaid charter capital and purchase price or a violation of the pre-emptive right. Next, the sale and purchase agreement and other transaction documents are prepared, and required regulatory clearances and approvals from LLC participants are obtained. The process concludes with registration of the new LLC participant, UBO, and ownership structure in the Ukrainian corporate register.
