How to Start a Business in Ukraine?
As a consultant to foreign investors on business risks in Ukraine, the author is frequently asked about the best ways to start a business in that country. In this article, he highlights the key issues.
We shall start from the enterprise state registration in Ukraine. The main thing you should know is that there is no better or worse type of enterprise. All enterprise types are equal in conducting economic activity and taxation in Ukraine. The circle of legal entities which can conduct the specific type of activities, such as banking, securities activity and pawning are strictly limited by the Ukrainian legislation. The difference lies on the management type, or responsibility of the owners, and the charter capital.
The most popular and comfortable enterprise forms in Ukraine are Private Company and Limited Liability Company (LLC). It is important to highlight that the LLC can be founded with 100 per cent of foreign investments and can be owned either by the only one legal person (the owner) or several legal persons.
The most popular enterprise type for foreign investments is LLC. This type allows solving all typical assignments of the foreign owner such as: conducting the economic activity in Ukraine through the under controlled company or participation of Ukrainian partners, the possibility of receipt and repatriation of incomes, absence of foreign owner’s responsibility on the LLC debts, etc. We would like to point out that the Ukrainian legislation on foreign investments provides the defense of foreign investments no matter what kind of business it is.
All businesses shall be officially registered by the Registrar at the place of residence of a business entity.
The following documents, in particular, should be submitted for registration:
1. The statute (company charter);
2. Registration card, serving as an application for official registration;
3. A copy of an owner’s decision to create a legal entity;
4. Document attesting payments of the official registration fee.
If the owner is a foreign legal entity, an extract from the trade, bank or court register must be produced to certify registration of the investor in the country of origin. Also, a company charter and a power of attorney (proxy), specifying formation of business, for the individual who will represent the company in Ukraine are recommended. These documents must be duly approved according to legislation of the country of issue, translated into Ukrainian and legalized abroad. If the owner of the LLC is a foreign individual, such person has to obtain a Ukrainian identification code. This procedure can take about 10 days.
The LLC charter fund is equal to 100 minimal wages. As of April, 2007, the minimum LLC charter fund is equal to 42,000 hryvnas, but in September 2007, it will increase to 46,000 hryvnas. The LLC charter capital can be formed either with property or with cash. The Ukrainian legislation prescribes that the 50 per cent of the charter fund must be formed before the official registration process is started. The LLC owners who have 60 per cent of the charter fund have the formal management power under the company. Practically, even if you have less then 50 per cents of the charter capital, there are a lot of ways that allow control under the LLC. The charter capital must be fully formed during the first year after official registration. We should note that Private Company charter capital doesn’t have the proper legislative provisions. So, the Private Company charter capital can amount from 100 hryvnas. There are no legally binding obligations for the Private Company charter capital forming terms.
Labor relations in Ukraine are regulated by the Labor Agreement.
Employees have to perform the job stipulated by the agreement, adhere to internal organization order. Businesses have to pay salaries to employees, provide worthy working conditions.
The Labor agreement can be:
-Perpetual, termless agreement,
-On the certain term, set by the agreement,
-Executed for the job period.
The Labor agreement is written. But the written forms are not essential to bind a business. The Labor agreement is considered to be in force from the moment the employee starts performing his/her job.
Written Labor agreements are recommended since provides:
-Organized employee environment,
-Labor agreement conclusion under health harmful conditions,
-For contract execution,
-Labor agreement conclusion in case of minors,
-When employees insists on the written form of the Labor agreement.
Contract: is a version of a Labor agreement but with some differences.
According to the Cabinet Council Resolution (19.03.94, №170), the Contract is executed for a certain term and applicable for the certain termed employees. The difference between the Contract and the Labor agreement is that the first is always effective in the written form.
The Contract provides following obligations:
-Obligations and responsibilities,
-Conditions of material maintenance and work organization,
-Intellectual property issues,
-Cancellation provisions, etc.
Labor disputes resolutions are regulated by article 134 of the Labor Code. It is important to note that contractual obligations which worsen employees working conditions in comparison with legally binding legislation are invalid.
Properly executed Contracts will help establish excellent corporate relations. So, when drafting those documents it is important to turn to experienced lawyers.
*Right to work
According to Ukrainian law, foreigners can work in Ukraine only after obtaining the license to work. Foreigners can be employed only if there are no local experts, or it is an urgent reasonable need to obtain the foreign working resources. The Employment Service Body is cognizant in granting the license to work. Service Employment commission gathers twice a month (on Thursdays). It is important to know, that the license to work is valid for one year. Frequently, first time licenses are issued for the term of half a year. The license is expected to be issued within a week, after the Commission’s positive decision. In case of refusal, the individual has the right to reapply documents in a month.
For the Service Employment Commission enquiry, the following should be submitted:
-Receipt on state custom (for the Service Employment Commission enquiry), (the state custom is equal to 10 tax-exempt minimums),
-Foreigner’s data (name, second name, date and year of birth, specialization (Diploma on specialization), a copy of passport (all pages),
-Certificate of incorporation (copy),
-Contract (draft copy),
-Power of attorney (copy).
-All copies must be duly certified.
*Choosing a business partner in Ukraine
If you want secure yourself and provide proper external economic contractual obligations performance, it is necessary to pay special attention to the planning stage of negotiations. It is necessary choose a partner. It is important to find out data about your possible Ukrainian partner. Such as, official registration, location, charter fund amount, basic and working assets, etc. The above mentioned information can be found at the Official Registrars Office. Let’s consider the list of the official information given by the official bodies and organizations.
1. Full name and registration address.
2. Ownership pattern and legal form. There are three types of the ownership’s pattern in Ukraine. They are state, mixed and private patterns. But, the overwhelming parts of medium seized companies are in private ownership. Ports and Harbors are exclusively in state ownership. Also, there are many mixed public-private capital companies in Ukraine.
3. The charter fund amount. It is possible to learn the real sum paid at the time of the official registration.
4. Incorporators, year of incorporation. Either physical or legal persons can act as company promoters. Incorporation structure and incorporation date will help to establish who governs the company, company’s age, reputation and traditions.
5. To establish the presence of the official registered moveable property and real estate. This information allows us to understand which kind of property can be recovered, in case the contractual obligations are broken.
6. The amount of employees. This information allows covering the relative information on company’s economical activity.
7. Working capital circulation for the one or two year’s period. It helps to indicate the real extend of company’s economical activity.
8. The governing authority, authorities who has powers to sign for the company. This information is essential for the contract execution. Because it allows to establish the authorities list.
ABOUT THE AUTHOR: Anna Hodakovska
InJurConsulting, LLC is a young law firm, but inspite of that it is permanently developing union of solicitors and barristers admitted in Ukraine. Our firm set up the head-office in Nikolaev, in 2007.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.