When starting a business, many individuals ponder over the correct organization of their enterprise, including navigating through paperwork. While drafting a business plan may take days, dealing with the administrative tasks involved in establishing a company isn't as burdensome as it may appear, particularly when entrusted to professionals. In this piece, we'll delve into the aspects it's advisable to pay attention to when setting up an LLC.
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Establishing a Limited Liability Company: Who are the Participants
If there are foreigners among the participants, they first need to obtain an identification number in Ukraine. They don't necessarily have to come to Ukraine for this. They can issue a power of attorney in their country and transfer it to the persons who will be responsible for obtaining the code. If you are registering a company with us, we will also be able to obtain the code for foreign founders and provide a draft power of attorney.
If foreign legal entities (companies or organizations) are among the participants, they will need a document proving the registration of their company or organization. This could be an extract from the trade or court register, chamber of commerce, and so on. Additionally, a foreign legal entity will need a protocol or decision stating its intention to establish a company in Ukraine.
All foreign documents must be properly certified, depending on the international agreements between Ukraine and the country where the documents are issued. In some countries, an apostille is recognized. With others, there are agreements on mutual recognition of documents, and a notarized certification is sufficient, as with Poland. However, in many countries, there are no such agreements, so documents will need to be legalized. When starting cooperation with the creation of an LLC, we will guide you through all of this.
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Number of Participants in LLC Formation: How to Choose the Right Number of Participants
The number of participants in an LLC is unlimited. That means, when establishing an LLC, there can be anywhere from one to an infinite number of participants (well, at least theoretically). However, there are situations where the company may become deadlocked, preventing further action. Why does this happen? The most perilous ownership distribution when establishing an LLC is 50/50. And this is absolutely not an exaggeration. According to the Law on Limited and Additional Liability Companies, decisions are made in three ways:
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Unanimously;
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By three-quarters of the participants;
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By a simple majority.
However, in the case of a 50/50 ownership split, if one of the participants withdraws from the process, absolutely no decisions can be made. None! This creates a deadlock, from which the participant left alone with their 50% share has only one way out: to dispose of their share by selling it through the so-called alternative liquidation procedure. And if they are also a director, they will have to resign through the court. In short, a 50/50 ownership split is recommended only when both business partners understand during the formation of the LLC that they are now "in the same boat" and are highly interdependent.
Setting Up an LLC: What to Consider When Registering a Company?
We won't offer you generic advice like "what paragraphs constitute the LLC charter." Nowadays, you can easily find quite decent draft statutes online that comply with the law and can be registered by the authorities. However, there's no guarantee that these standard statutes will fully meet your specific needs and interests. So, what else should you take into account when establishing an LLC?
Will the Director of an LLC Receive a Salary?
The director, as an employee, is entitled to receive a salary. However, at the outset of a business's development, there may either be insufficient funds to pay a salary or it may not be prudent to do so, especially if the director is also a participant in the company. In such cases, it is possible to forego paying a salary, especially if stipulated in the LLC's charter.
Can Shares Be Sold Without Consent from Other Participants?
In general, according to current legislation, including the aforementioned Law "On LLCs and JSCs", each participant has the right to sell their share without the consent of the other participants. There is only a requirement that they must offer the other participants the opportunity to buy the share they intend to sell. If there is no response within a month from the date of proper notification, the participant can freely sell their share to anyone.
However, an agreement can be reached stipulating that shares cannot be sold without mutual consent. This provision not only fortifies the cohesion within the business alliance but also solidifies the control exerted by its participants. This becomes particularly consequential if, at some point, one participant opts to disengage from the business, while another intends to exit, yet without the consent of the former, who has long ceased communication, such transactions cannot proceed.
Here are some crucial considerations and much more that should be addressed at the outset of company formation. If you need assistance with this process, we would be happy to help and guide you through registering an LLC in Ukraine. We can provide consultation on potential risks and the best course of action, prepare all necessary registration documents, facilitate their notarization, or sign them on your behalf without a power of attorney, and handle the complete registration process.
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