DRAFT

Lower quorum for general meetings

The Draft Act On Changes to Article 60 of the Act of Ukraine on Companies (concerning a lower quorum at general meetings of limited liability companies) of 29 April 2015, No.2757 has been submitted by Ukrainian MP Pavlo Rizanenko.

The Draft suggests changes to Part 2, Article 60 of the On Companies Act, and namely: to reduce the number of present members of a limited liability company from 60% to over 50% of votes for a general meeting to be deemed authorized for the adoption of decisions.

Licensing

The Draft Act On Changes to Certain Legislative Acts of Ukraine on Elimination of Contradictions in Licensing of 14 May 2015, No.2842 has been submitted by Ukrainian MP Yuriy Vozniuk.

The Draft proposed making changes to the On Land Appraisal Act of Ukraine and the Land Code of Ukraine, which would legally determine the participants of appraisal, including:

— legal entities — business entities regardless of their organizational-legal form that have expert appraisers of land;

— individuals — entrepreneurs who have a qualification certificate as land appraisers.

Changes to the Land Code of Ukraine stipulate that the price of a land plot would be determined by an expert appraisal carried out by organizations that meet the requirements of the On Land Appraisal Act of Ukraine, upon the orders of public authorities, the Council of Ministers of the Autonomous Republic of Crimea or local governments. The price of a land plot that is over 50 hectares in area for outdoor sports and fitness facilities would be determined by a normative appraisal that is specified in the technical documentation. The financing of a land plot by expert appraisal will be provided at the expense of the buyer’s advance payment, which cannot exceed 20% of the land’s value as determined by the normative appraisal of land.

Personal income tax

The Draft Act On Changes to the Tax Code of Ukraine on Fair Personal Income Tax within the Range of 10 to 17 Minimum Wages of  7 April 2015, No.2576 was submitted by a group of Ukrainian MPs. (The Act was approved on 19 May 2015 and sent to the President’s office for signing on 25 May 2015).

The Draft proposes the following:

— to increase the tax base from 10 to 17 minimum wages with a 15% rate of personal income tax. Personal income exceeding 17 minimum wages will be subject to a 20% tax rate;

— to establish that the maximum tax base for employable persons will depend on the minimum wage as of 1 January of the current year;

— to introduce a reducing ratio for determining the amount of the tax at the level of 0.4 starting from 1 January 2016.

Comments

Olha Demianiuk,  senior associate,  Baker & McKenzie

Proposed changes to the On Companies Act of Ukraine decreasing the quorum for holding general participants’ meetings from 60% to 50% are aimed at unifying the mandatory quorum threshold for joint stock companies (JSCs) and limited liability companies (LLCs). This is a positive point, because before recent changes to the JSC Act decreasing the quorum for JSCs to 50% came into effect, a 60% quorum was required both for JSCs and LLCs. The reduced quorum will also help to solve deadlock situations in those 50/50 LLCs which were not able to convene general participants’ meetings for many years.

On the other hand, the proposed changes will shift the well-established balance of powers between the participants of existing LLCs and may lead to new corporate conflicts. These changes may also trigger corporate restructurings whereby participants will start transferring their shareholding of Ukrainian LLCs to holding companies in jurisdictions with developed corporate governance regimes and entering into shareholders agreements with respect to corporate governance issues of such a holding company.

A more elegant solution for lawmakers would be to abolish mandatory provisions regarding the quorum at all (like in many other European jurisdictions) and allowing the shareholders/participants to enter into shareholders agreements where they would agree on quorum requirements tailored to their corporate governance structure. Alternatively, a 50% quorum could serve as a minimum threshold with flexibility for shareholders/participants to provide a higher quorum requirement in their charters and/or shareholders agreements.