Structuring business in Ukraine

1
Structuring business in Ukraine
aspects

C O N T E N T  
A N A LY Z I N G N O V E L S : I R R E V O C A B L E P O W E R O F
A T T O R N E Y F O R C O R P O R A T E R I G H T S
Ovsii Kateryna, business department, director of business support area………………… 3
N E W O P P O R T U N I T I E S : T H E A C Q U I S I T I O N O F T H E
R I G H T T O U N I L A T E R A L T E R M I N A T I O N O F T H E
C O N T R A C T
Belaya Yana, litigation department, associated partner, attorney at law……………… 5
T H E E S C R O W A C C O U N T S T H R O U G H T H E B A N K S ’
A N D C U S T O M E R S ’ E Y E S . T H E I S S U E S A N D
O P P O R T U N I T I E S O F U S E
Ovsii Dmytro, head of litigation, Managing partner, attorney at law……………………… 8
T R A N S F E R P R I C I N G : C H A N G E S 2 019
Poberezhnyk Alena, litigation department, attorney at law………………………………… 18
T H E A C Q U I S I T I O N O F T H E R I G H T T O O N E - S I D E
T E R M I N A T I O N O F A G R E E M E N T
Belaya Yana, litigation department, associated partner, attorney at law……………..… 27
W H A T I S A N A G R E E M E N T O N T H E E N F O R C E M E N T O F
T H E R I G H T S O F T H E L L C ’ S P A R T I C I P A N T S A N D W H Y
D O YO U N E E D T O U S E I T ?
Ovsii Dmytro, head of litigation, Managing partner, attorney at law……………………… 30
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A N A LY Z I N G N O V E L S :
I R R E V O C A B L E P O W E R
O F A T T O R N E Y F O R
C O R P O R A T E R I G H T S
Recently, the Law of Ukraine “On amendments to particular
legislative acts of Ukraine concerning corporate agreement”,
which amended a number of regulatory legal acts regulating
the issue of corporate governance, entered into force. The
amendments affected the Civil Code of Ukraine and the Laws
of Ukraine “On business associations”, “On securities and the
stock market”, “On joint-stock companies”.
In particular, this Law introduces such new concepts for the
domestic legislation as an irrevocable power of attorney for
the corporate rights, an agreement on exercising of the
members’ (founders) rights of the limited liability company,
and an agreement between the shareholders of the company.
Similar innovations also occur in the Law of Ukraine “On
Limited Liability and Supplementary Liability Companies”.
It should be noted that these amendments are carried out in
the context of cooperation of Ukraine with the European
Union in the field of corporate governance and are aimed at
raising its level in joint-stock companies and limited liability
companies, as well as convergence with the European
standards and rules. Thus, the concept of the irrevocable
power of attorney for the corporate rights is a novel in
Ukrainian legislation.
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Ovsii Kateryna
BUSINESS SUPPORT
DEPARTMENT
Director of Business support area

L E G I S L A T I V E P R O V I S I O N
A N A LY S I S
As of today, the Law mostly refers to the
use of such powers of attorney in relations
arising from the shares (rights to shares)
and rights (power and authority) in terms
of the fulfillment or enforcement of
members’ (shareholders’) obligations.
However, the subparagraph 1 of Article No.
51 of the Law of Ukraine “On business
associations” begins with the phrase “in
the case of” and hints at the wider
possibilities for using irrevocable powers of
attorney in corporate relations. The same
phrase is found in the Law of Ukraine “On
joint-stock companies”.
The specific subject of the irrevocable
power of attorney for the corporate rights
is the fulfillment or enforcement of the
obligations of the company’s members, the
subject of which are the rights to shares or
powers of the members. Such power of
attorney gives to the creditors or their
authorized persons the confidence in the
performance of the obligations by the
member (debtor).
The procedure for termination of the
irrevocable power of attorney must be
prescribed in such power of attorney. Thus,
the termination of the irrevocable power
of attorney is possible in the event of the
termination of the obligations, for the
fulfillment of which it was issued; its
expiration date; granting the consent of
the authorized representative to cancel
the power of attorney, as well as in the
event of the circumstances provided for in
the Article No. 248 of the Civil Code of
Ukraine, except for the revocation of the
power of attorney by its issuer.
The irrevocable power of attorney is the
subject to the notarial attestation, even if
it is issued by the member, that being a
legal entity, and such power of attorney is
not the subject to reassignment the rights
to the third parties.
F O R E I G N E X P E R I E N C E
In the international practice, the use of
the irrevocable powers of attorney is
common during the transactions with
stocks that circulate on the open market.
The shareholders, who cannot attend the
annual general meeting, may issue such
irrevocable power of attorney so that
another shareholder has the right to vote
their shares (proxy voting, or voting based
on the power of attorney).
In this case, the irrevocable power of
attorney gives the guarantees to other
shareholders that the shareholder, who has
such irrevocable power of attorney, is duly
authorized at the time of voting. Generally
the validity of such power of attorney is
limited to the current meeting and
terminates upon the termination of
meeting. 
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N E W O P P O R T U N I T I E S :
T H E A C Q U I S I T I O N O F
T H E R I G H T T O
U N I L A T E R A L
T E R M I N A T I O N O F T H E
C O N T R A C T
The Law of Ukraine “On amendments to particular legislative
acts of Ukraine concerning corporate agreement”, which
amended the Civil Code of Ukraine, the Law of Ukraine “On
joint-stock companies”, the Law of Ukraine “On securities
and the stock market” and introduced new instruments,
came into force: an agreement on the enforcement of the
rights of the participants (founders) of the limited liability
company, an agreement between the company’s
shareholders, an irrevocable power of attorney for corporate
rights.
On February 06, 2018, the Law of Ukraine “On limited and
additional liability companies” was adopted, which regulates
in more detail the activities of the limited and additional
liability companies, and specifies a part of the concepts
introduced by the analyzed Law.
However, the issue of the compliance of provisions of the
Law of Ukraine “On amendments to particular legislative acts
of Ukraine concerning corporate agreement” to the
provisions of the Law of Ukraine “On limited and additional
liability companies” requires the further study.
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Belaya Yana
LITIGATION
DEPARTMENT
Associated partner, attorney at
law

N E W R I G H T
The Law “On amendments to particular
legislative acts of Ukraine concerning
corporate agreement”, in particular
supplemented the Civil Code of Ukraine
with the Article No. 658 “The acquisition of
the right to one-side termination of
agreement” to read as follows:
O N N O T I C E
The parties to the purchase and sale
agreement can agree that one party
acquires from the other party the right to
terminate this agreement unilaterally.
The purchase and sale agreement is
terminated if the party, which acquired the
right to terminate the agreement in
accordance with the first subparagraph of
this article, does not declare the
requirement to fulfill the agreement for
the certain period. The parties may cause
the termination of the purchase and sale
agreement by the performance of certain
actions by the party or the occurrence of
certain circumstances during the certain
period or at the certain time.”
This amendment appeared in the text of
the draft law only in the second reading,
which means that the addition of the Draft
article No.658 of the Civil Code of Ukraine
does not meet the requirements of the
Article No. 116 of the Regulations of the
Verkhovna Rada of Ukraine, since these
n o r m s w e r e n o t t h e s u b j e c t o f
consideration in the first reading. This, in
particular, is emphasized in the comments
of the General legal department to the
text of the draft law for the second
reading. However, although under the
different name, the article was accepted.
Please note that this article is included in
the chapter of the Civil Code of Ukraine
named “Purchase and Sale”, so it can be
applied to the agreements of purchase and
sale, supply, agreements for the delivery of
agricultural products, supply of energy and
other resources through the connected
network, barter.
Of course, these provisions have not yet
been widely applied, and the practice of
their implementation in the agreements
will still be developed.
As a general rule, the agreement can be
terminated by the mutual agreement
between the parties. Thus, in accordance
with the Article No. 525 of the Civil Code
of Ukraine, unilateral refusal of the
obligation or unilateral amendment of its
conditions is not allowed, unless otherwise
provided by the agreement or law. Thus,
even before the introduction of Article No.
658 the unilateral termination of
agreements, including purchase and sale
agreements, could be allowed, if the
parties agreed.
The new article allows the counterparties
(but does not obligate imperatively) to
agree in the agreement the possibility of
one party to acquire the right to one-side
termination of agreement, so:
the party acquires such right (it receives
the fee);
the parties may establish that the party
may terminate an agreement after it has
completed certain actions, certain
circumstances (for example, compensation
to the other party for the losses related to
performance of the agreement);
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the acquired right to one-side termination
of the agreement may be limited in time
(term or date);
the party that acquired the right may
refuse it by stating the requirement to
fulfill the agreement;
the right of the party to refuse termination
is limited to the period specified in the
agreement.
A S T H E P R A C T I C A L
M A T T E R
Let’s simulate the situation in which this
rule can be applied.
The parties enter into the agreement for
purchase and sale of the property rights to
real estate, providing for the seller’s right
to unilaterally terminate the agreement
(to refuse to fulfill its obligations to
transfer property rights to real estate) for
the nominal fee. This will allow the seller
to use the funds received from the
purchaser for the construction of the
object, and in the future to abandon the
agreement, making the compensation the
purchaser for the certain amount, and
transfer the object to another purchaser
(for example, after the commissioning of
the house) at the higher price - the only
question is the reputation of the seller and
the care of the purchaser.
Thus, it is inappropriate to say that the
right to unilateral termination is a novel,
but now the legislator has allowed the
parties to receive payment for it. 
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T H E E S C R O W A C C O U N T S
T H R O U G H T H E B A N K S ’
A N D C U S T O M E R S ’ E Y E S .
T H E I S S U E S A N D
O P P O R T U N I T I E S O F U S E
PACTA SERVANDA SUNT (lat. “A deal is a deal”) is relevant at
all times and for the level of development of social relations,
since the norms of coercion or the force in their promising
action are most often opposed and conversely, the mutual
respect and trust are the basis and necessary prerequisite for
the development of correct and effective legal relations
between all interested participants.
Unfortunately, the existence of a pure trust relationship that
is not supported by the measures to ensure the
implementation of agreements in the practical and law-
enforcement area, has been nominal for a long time, and
each party to the agreement wants to protect their rights
and interests from the potential violations by the other side
as effectively as it is possible, the risk of such violations
occurs in most situations.
The measures to ensure the proper performance of the
obligations and the instruments used are diverse but not
cross functional. The advantages and disadvantages of the
charge, guarantees, retention, etc. in the scientific and
practical environment were studied and the conclusions were
made. 
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Ovsii Dmytro
HEAD OF LITIGATION
Managing partner, attorney at law

The search for the more convenient and
efficient mechanisms, which give
uncomplicated and equally effective way
to provide each party of the obligation
with equal opportunities for proper
performance of the obligation and equal
levers of the passive influence on the
outcome of such obligation between its
parties, led to the introduction of the
escrow institution in Ukraine - conditional
keeping of cash assets known as the escrow
account.
The specified instrument in its pure form is
a novel of the domestic legislation;
however, it is not new for other countries
of the world, which have been successfully
applying it for a long time. In fact, the
term “escrow” (“escrow” is a small piece,
cut, single parchment) traces the lineage
to the XVI century A.D. It meant making a
deposit to the certain third (independent)
party and such deposit was in the
possession of the disinterested party
before the other party will fulfill its
obligation.
In accordance with the Article No. 1076 of
the Civil Code of Ukraine, which appeared
in the Code due to the Law of Ukraine “On
amendments to certain legislative acts of
Ukraine regarding the improvement of
corporate governance in joint-stock
companies” dated March 23, 2017 No.
1983-VIII that entered into force on June
04, 2017, according to the escrow
agreement the bank undertakes to accept
and transfer to the escrow account, which
was opened to the client (account holder),
the funds received from the account holder
and / or from the third parties, and to
transfer such funds to the person (persons)
indicated by the account holder (the
beneficiary or beneficiaries), or return
such funds to the account holder upon the
occurrence of the circumstances stipulated
in the escrow agreement.
Thus, the role of the escrow agent is
assigned exclusively to the banks, since the
object of the deposit is exclusively
monetary means, which are credited and
blocked in the special escrow account. 
I N T E R N A T I O N A L P R A C T I C E
O F E S C R O W
In the United States of America, Sweden,
Denmark, other economically developed
countries, escrow is a popular way of
securing the liabilities. Thus, in the United
States of America, the escrow account is
used by the parties to the agreements
related to real estate (in particular,
mortgage loans, where the mortgage
company establishes the deposit account
for paying (transferring) the property tax
and property insurance). The escrow
accounts are also used for the sale
(transfer) of the valuable information and
property, especially in case of agreements,
which are accepted remotely.
In the UK, the escrow accounts are often
used during private property transactions
to store customers’ money, such as the
deposit, until the transaction will be
completed.
A D VA N T A G E S A N D
O P T I O N S O F E S C R O W
A C C O U N T
In Ukraine, the use of escrow accounts will
become increasingly popular and field of
application, taking into account the
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convenience of such instrument. At the
s a m e t i m e , t h e e s c r o w a c c o u n t
transactions are precisely the method of
the settlements between the interested
parties at the legislative level.
The advantages for banks acting as such
agents are obvious.
First of all, it is the attraction of the
resource and the possibility of its usage
during the period, while it stays at the
bank, and guaranteeing the timely transfer
of such funds to the beneficiary
(beneficiaries) or the return of such funds
to the account holder in accordance with
the terms and conditions of the escrow
agreement, if the usage is not specified in
the escrow agreement.
Secondly, the remuneration for carrying
out the escrow account transactions,
depending on the amount and complexity
of the actions carried out by the bank, can
be set by the bank at an appropriate and
interesting level for itself, which increases
the commission income to the bank.
The new customers engagement is also an
obvious advantage for the banking
institutions, since by providing the banking
services for the escrow account
maintenance at a high-quality and
professional level, the bank has all
possibilities to leave a satisfied customer
(both the account holder and the
beneficiary) for the further servicing with
the rendering other banking services.
For bank customers and their beneficiary
counterparties, making the settlements
between themselves using escrow accounts
is a convenient option and sufficient and
affordable way for the timely and
complete execution of pecuniary
obligations between such parties.
At the same time, such interested in using
the escrow account parties should keep in
mind the following points.
Thus, all conditions for the receiving funds
by the bank to the escrow account,
crediting, transferring to the beneficiary or
returning to the account holder must be
specified specifically in the escrow
agreement. In connection with the
mentioned points, the parties to the
transaction need to be scrupulous about
the issues of the accuracy of settling all
amounts, terms, account details, cases of
bank transfer of funds to the beneficiary or
their return to the account holder, which
will be specified in the escrow agreement,
as the bank will fulfill this agreement and
its terms and conditions, rather than for
example, an asset purchase and sell
agreement, etc.
The escrow agreement is a bilateral
agreement (bank - client), if the
participation of the beneficiary as a third
party has not been agreed in advance.
Unless otherwise provided by the escrow
agreement, neither the account holder nor
the beneficiary shall have the right to
manage the funds, which are stored on the
escrow account.
The timeliness and objectivity of the
settlement of the escrow account by the
bank are guaranteed by the bank’s
predetermined procedure for checking the
actual occurrence of such circumstances as
stipulated in the agreement, as well as the
extent to which the bank conducts such
verification - checking documents only by
the external signs (account details,
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signatures, etc.) or deeper, which includes
requesting the additional documents,
legal analysis of the documentary evidence
of such grounds for transferring funds, etc.
The advantage of using the escrow
account, whereof is already “loudly
silenced”, is the inaccessibility of such
funds for other persons. Thus, according to
the Article No. 1076 of the Civil Code of
Ukraine, enforcement and (or) seizure of
funds on the escrow account, the
obligations of the bank, where the account
is opened (including in the event of its
liquidation) are not allowed, except for
the amount of funds on the account that
the bank has the right to withhold as a fee
as of the date of enforcement or seizure
under the escrow agreement.
The enforcement and / or seizure of
escrow account balance are not allowed
for the obligations of the account holder or
the beneficiary (including in the event of
their liquidation). At the same time, the
enforcement and / or seizure of the right
to claim the account holder or beneficiary
to the bank are allowed on the basis of the
escrow agreement, including the right to
claim payment of the funds (or the part of
funds) that are on the escrow account,
upon the occurrence of the circumstances
specified in the escrow agreement.
In fact, there is no possibility of free usage
of such funds for the repayment of other
obligations (monetary claims) of the
customer, including in the procedure of
arrest, forced debiting of funds, as is
possible for current and deposit accounts.
The rights and guarantees of the
beneficiary regarding the observance of its
interests and the fulfillment of the
monetary obligation by transferring funds
from the escrow account in its favor are
determined by the impossibility of making
amendments to the concluded escrow
agreement without its knowledge or
consent, even if such beneficiary was not a
party to the agreement (except for the
cases of making amendments, which do not
limited rights of the beneficiary).
E S C R O W : D E A L S A N D
P A R T I C I P A N T S
Such deals are well known to Ukrainian
lawyers, especially with regard to the sale
of especially valuable assets. But in order
to use such instrument, before they had to
apply foreign jurisdictions, non-residents
and foreign banks.
The Purchaser of an asset. The person,
who plans to purchase the asset, deposits
the funds at the bank to pay for the asset.
The Seller of the asset. The owner or
representative of the asset. It may also be
the recipient of the funds. In case of the
deal, he performs actions aimed at
transferring the right to the asset to the
purchaser. He can receive the documents
that he submits to the bank for making the
payment.
The Beneficiary. The person in respect of
whom the escrow bank makes the
payment. As a rule, such person is the
purchaser of the asset. However, the
parties may provide for payment of the
part or the entire payment in the interests
of the third party (beneficiary).
The Escrow agent. Involved by the parties
to the deal person, who temporarily stores
the documents, funds and other materials
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on behalf of both parties to the
agreement. After fulfilling the terms and
conditions of the agreement by the parties
in full, the escrow agent transfers the
abovementioned materials in accordance
with the terms and conditions of the
agreement. It may also be the person
responsible for the completion of the
documentation that is submitted to the
bank for payment. In some countries, the
activity of the escrow agent is the subject
to licensing.
The Escrow Bank. The bank in which the
parties opened the escrow account with
the conditions. In some cases, the escrow
bank can perform the function of the
escrow agent, verifying that the party has
fulfilled its obligations. The bank is
responsible for the safety of the funds.
The Bank of seller. When the bank is
chosen by the purchaser, the escrow bank
may differ from the seller’s bank. In this
case, the escrow bank sends the payment
to the seller’s account at such bank.
W H E N A N D H O W T O
M A K E S U C H E S C R O W
D E A L ?
You can perform the escrow deal and use
the escrow account in the variety of ways.
Consider some of them. 
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S A L E O F G O O D S
R E M O T E LY
The parties to the deal are at the distance
from each other. The goods are the
physically tangible assets that require the
transportation. The carrier may also be
involved in such deal.
Suppose that the parties have agreed on
the sale of goods. The seller wants to be
sure that the money will be transferred.
The purchaser wants to be sure that the
goods will be delivered. Having decided on
the method of delivery of the goods and
understanding that the seller (or the
carrier) has the title deeds, the parties can
agree on the following:
• The parties make the deal and describe
in detail the terms of payment - with
which documents the bank makes the
payment (1). In the case of goods, these
may be the title deeds for the carrier or
the documents on the transfer of goods
to the carrier;
• Open the escrow account at the bank,
describing in detail the documents that
will be provided to bank for making the
payment (2);
• The purchaser deposits funds in the
escrow account (3);
• The seller transfers the goods to the
carrier and the carrier delivers the
goods;
• The seller comes to the bank with the
necessary documents, provides such
documents and makes the payment (4).
Also, the carrier may transfer the
documents to the bank (5). Thus, he can
partially perform the function of the
escrow agent - the delivery of the
documents required for payment;
• The escrow bank transfers the funds in
favor of the seller of the goods
(beneficiary). 
 
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The seller The purchaser
The escrow agent
(carrier)
The escrow bank
5
2
4
1
3

S A L E O F R E A L P R O P E R T Y
The goods: real estate, requiring
registration of the ownership in the
registry. The notary and broker are
involved in the deal.
The parties agreed on the sale of real
estate. The seller wants to be sure that
the money will be transferred and the
purchaser wants to be sure that the
property will be re-issued. There may also
be the concerns about encumbrances on
one of the parties, real estate, etc., which
casts doubt on the completion of
registration of title to real estate for the
purchaser. The deal is the subject to
notarization. And the ownership of the
property transfers after the notarization of
the agreement. In the deal the broker
(brokers) may be involved on the side of
the seller and / or purchaser.
Possible algorithm of the deal:
• The parties determine the escrow bank
and the escrow agent;
• The escrow-bank opens an account for
the deal with payment after the receipt
of documents confirming the registration
(transfer) of the ownership of purchaser
(1). The parties can determine the
person, who will provide the bank with
necessary documentation for payment
(the escrow agent). It can be the seller
himself, the broker, the notary (2);
• The purchaser and the seller sign the
notarial agreement of sale and purchase
(3). The documents on the real estate
can be kept by the escrow agent (broker,
notary). The notary registers the title to
the purchaser;
• The seller or the escrow agent submits
the documents to the escrow bank for
making the payment (4);
favor of the seller of real estate.
• The parties may also provide for the
possibility of paying other expenses from
such escrow account. For example,
business expenses, notary fee, taxes,
etc.
In this case, not only the seller, but also
other persons (beneficiaries) can be
recipients of the funds. 
 
14
The escrow agent
(notary officer)
The escrow bank
4
4
1
3
22

S E C U R I T I E S S A L E S
The goods: the securities. The securities
dealer is involved in the deal.
The parties agreed on the sale of the
securities. The seller wants to be sure that
the money will be transferred and the
purchaser wants to be sure that the
securities will be credited.
The deal is not the subject to notarization,
however, the mandatory participation of
the securities dealer is provided.
• The parties determine the escrow bank
and the escrow agent;
• The escrow bank opens an account for
the deal with payment after the receipt
of documents confirming the transfer of
securities to the purchaser's account (1).
• The parties can determine the
person, who will provide the bank with
(the escrow agent). It can be the
securities dealer or purchaser's
custodian (2);
• The purchaser and the seller sign the
securities sale and purchase agreement
(3). The documents on the securities can
be kept by the escrow agent (securities
dealer);
• The seller sends an order for the
transfer of securities to the purchaser's
account;
• The seller or the escrow agent submits
the documents to the escrow bank for
making the payment (4);
favor of the seller of the securities. 
15
The indicator of deal The sponsor
Bank
The contractor
5
3
2
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R A I S I N G F U N D S T O
F I N A N C E C O M M U N I T Y O R
C H A R I T Y P R O J E C T S
The goods: goods, works or services
necessary to achieve the social effect.
Such goods can be the following:
t r e a t m e n t , c r o w d f u n d i n g , s o c i a l
investments. The purpose of the deal is to
achieve a non-commercial (social) effect.
Source of funds: the contributions from the
third parties. The raising of the funds is
organized by the initiator of the deal: a
private individual, a public organization
(PO) or a charitable foundation (CF). The
recipient (beneficiary) of the funds may be
a contractor (medical center, construction
organization, supplier of the goods).The
initiator of the deal decides to raise the
funds to finance the purchase of goods. To
achieve the goal, the initiator of the deal
organizes a campaign to promote the goal
and goods. The initiator of the deal enters
into agreement with the supplier of goods
(medical center, construction organization,
supplier of the goods). The supplier of
goods will be the recipient (beneficiary) of
the funds collected from the third parties.
• The initiator of the transaction
determines the escrow bank;
the deal with the payment after
collecting the required amount, and
also controls that the funds will be spent
exclusively on the purchasing of the
goods (1);
• The initiator of the deal promotes the
fundraising (2);
• The initiator of the deal enters into
agreement with the contractor - the
recipient (beneficiary) of the funds
(3);
• The third parties (sponsors) perform the
payments to the escrow account (4);
• After collecting the required amount of
the funds, the escrow bank transfers the
funds to the beneficiary (5).
• If it is impossible to collect the funds,
all collected funds may be returned to
senders or sent to finance other
(predetermined by the terms and
conditions of the deal agreement)
projects. 
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The escrow agent
(securities dealer)
The escrow bank
4
4
1
3
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R E T U R N O F D E B T S E C U R E D
B Y T H E M O R T G A G E
The seller of the asset has a debt. The
debt is secured by the goods for which
there is a purchaser. The mortgagee of the
goods wants to control the deal in general
and the movement of funds in particular.
• The parties and the pledgeholder
(beneficiary) determine the escrow
bank;
the deal with payment in favor of the
pledgeholder (beneficiary) (1);
• The seller of the asset enters into
agreement with the purchaser of the
asset (2);
• The parties can determine the person,
who will provide the bank with
(the escrow agent). It can be the
securities dealer or purchaser's
custodian (3);
• The pledgeholder agrees to the deal (4);
• The parties may involve the escrow
agent to collect the documentation
package required by the bank for making
the payment. Such agent, depending on
the goods, may be: a notary, a securities
dealer, a broker or the bank itself;
• The seller, either the purchaser or the
escrow agent, provides the escrow bank
with the documents for making the
payment (5);
• The escrow bank transfers the funds to
the beneficiary (6).
• The above list of possible options for the
use of escrow accounts is not limited. By
analogy with the abovementioned
options, this instrument is suitable for
any deals, where is no trust between the
parties.
17
The seller The sponsor
Bank
The pledgeholder
(beneficiary)
6
4
3
The escrow agent
5
2
3
1

T R A N S F E R P R I C I N G :
C H A N G E S 2 019
In simple terms the transfer pricing is a method for
management of the financial result, optimizing the income
tax and transferring capital from one company to another
one, and the conditions of such transactions should not differ
from those used in similar transactions by the unrelated
persons.
It is no secret that companies often resort to the various
kinds of mechanisms for the withdrawal and capital
allocation, in particular, transferring to “their” companies in
countries, where tax conditions are much more profitable
than in Ukraine. To combat this phenomenon, there is a
consolidation and regulatory adjustment of the transfer
pricing at the state level.
The controlled transactions are subjects to the tax reporting
and verification in order to determine the amount of taxable
income received by the taxpayer participating in the
controlled transaction (one or more), the arm’s length
principle. The determination of the compliance of the
conditions of such controlled transaction with the arm’s
length principle is carried out according to the methods
specified in subparagraph 39.3 of Article No. 39 of the Tax
Code of Ukraine, in order to verify the correctness,
completeness of the charging and payment of the corporate
income tax.
Please note that the transactions only with non-residents can
be controlled. Therefore, if you do not have the transactions
with non-residents, do not worry - you do not need to submit
the Report on controlled transactions to the fiscal
authorities. But if you carry out the transactions with the
non-residents, check to see if they are controlled.
18
Poberezhnyk Alena
LITIGATION
DEPARTMENT
Attorney at law

According to the analysis of the current
Tax Code of Ukraine, it can be seen that it
is conditionally possible to single out the
following criteria for classifying the
transaction as the controlled one.
However, we emphasize that it is
mandatory that all of the following criteria
be respected at the same time:
• The transaction is carried out with the
non-resident;
• The transaction refers to at least one of
the types foreseen by the subparagraph
39.2.1.1 of Article No. 39 of the Tax
Code of Ukraine;
• The transaction reaches the established
value indicator.
If everything is clear with the first
criterion, the second and third require
more detailed consideration.
For convenience, we give the info with
detailed analysis of the second criterion of
the charging and payment of the corporate
income tax.
T H E C R I T E R I O N F O R
D E S I G N A T I O N T H E
T R A N S A C T I O N T O O N E
O F T H E T Y P E S P R O V I D E D
F O R B Y S U B P A R A G R A P H
3 9 . 2 .1 .1 O F A R T I C L E N O .
3 9 O F T H E T A X C O D E O F
U K R A I N E
Provision of the Tax Code of Ukraine:
Section “a” of subparagraph 39.2.1.1 of
Article No. 39 of the Tax Code of Ukraine
Type of transaction:
Carried out with the related parties - non-
residents
Note:
The definition of requirements applicable
to the related persons is given in
subparagraph 14.1.159 of Article No. 14 of
the Tax Code of Ukraine. In particular, but
not exclusively, these are circumstances
where:
• The powers of the sole executive body
of such legal entities are performed by
the same person (if the collegial
executive body is 50 percent or more),
or the executive bodies are appointed
(elected) by the decision of the same
person, or can be appointed by the
decision of such person; or decides on
the appointment (election) of 50
percent or more of the collegial
executive body or supervisory board of
each legal entity;
• One person directly and / or indirectly
owns the corporate rights of another
legal entity in the amount of 20 percent
or more;
• The ultimate beneficial owner
(controller) of such legal entities is the
same individual, and others.
Section “b” of subparagraph 39.2.1.1 of
Article No. 39 of the Tax Code of
UkraineSection “b” of subparagraph
39.2.1.1 of Article No. 39 of the Tax
Code of Ukraine
The sale and / or purchase of goods and /
o r s e r v i c e s b y t h e n o n - r e s i d e n t
commissioners
Note:
For this type of transaction it is mandatory
to enter into the commission agreement
with the non-resident.
19

Section “c” of subparagraph 39.2.1.1 of
With non-residents registered in the states
(territories) included in the list of states
(territories), approved by the Cabinet of
Ministers of Ukraine in accordance with
subparagraph 39.2.1.2 of the Tax Code of
Ukraine, or persons, who are the residents
of these states
Note:
A list of states (territories) that conform to
the requirements established by
subparagraphs 39.2.1.2 of Article No. 39 of
the Tax Code of Ukraine, approved by the
Resolution of the Cabinet of Ministers of
Ukraine dated December 27, 2017 No.
1045, states are provided that conform to
the requirements:
• where the corporate income tax rate
(corporate tax) is 5 or more percentage
points lower than in Ukraine (13 or less),
or which provide the economic entities
with the preferential tax treatment, or
where the peculiarities of tax base
calculation actually allow business
entities to pay the corporate income tax
(corporate tax) or pay it for the delivery,
5 or more percentage points lower than
in Ukraine (13 or less);
• with which Ukraine has not entered into
international agreements with provisions
for the exchange of information;
• the competent authorities that do not
provide timely and complete exchange
of the tax and financial information
upon the request of the central
executive body that implements the
state tax and customs policy.
Section “d” of subparagraph 39.2.1.1 of
Carried out with the non-residents, who do
not pay the income tax (corporate tax),
including income received outside the
state of registration of such non-residents,
and / or who are not tax residents of the
state in which they are registered as the
legal entities
Note:
The list of legal forms of non-residents,
who do not pay the income tax (corporate
tax), including the tax on income received
outside the state of registration of such
non-residents and / or not being the tax
residents of the state in which they are
registered as the legal entities, approved
by the Resolution of the Cabinet of
Ministers of Ukraine dated July 04, 2017
No. 480.
In case of amendments to the list of legal
forms of the non-residents in the context
of states (territories), approved by the
Cabinet of Ministers of Ukraine in
accordance with this subparagraph, they
become effective on January 01 of the
reporting year following the calendar year
in which such amendments are made.
Important! On January 01, 2019, the
provision came into force, according to
which if the non-resident, whose legal
form is included in the list approved by the
accordance with section “d” of this
subparagraph, in the reporting year pays
the income tax (corporate tax), the
taxpayer’s business transactions with such
non-resident in the absence of the criteria
specified in sections “a” - “c” of this
subparagraph shall be deemed to be
uncontrolled.
Section “e” of subparagraph 39.2.1.1 of
B u s i n e s s t r a n s a c t i o n s ( i n c l u d i n g
intercompany payments) carried out
2 0

between the non-resident and its
permanent representative office in Ukraine
Note:
According to the subparagraph 14.1.193 of
the Tax Code of Ukraine a permanent
representative office is a permanent place
of business, where the non-resident’s
business activities are fully or partially
carried out in Ukraine, in particular: the
place of management; a branch; an office;
a factory; workshop; an equipment or
facility for the exploration of natural
resources; a mine, an oil / gas well, a
quarry or any other place of exploration of
natural resources; a warehouse or premises
used for the delivery of goods, a server.
If the non-resident, whose legal form is
included in the list approved by the
accordance with section “e” of this
subparagraph, in the reporting year pays
the income tax (corporate tax), the
taxpayer’s business transactions with such
non-resident in the absence of the criteria
specified in sections “a” - “c” of this
subparagraph shall be deemed to be
uncontrolled.
It should also be noted that the
amendments to the Tax Code of Ukraine,
which entered into force on January 01,
2019, updated the rules for attributing
transactions to controlled, if the ownership
of the item (result) of such transaction
between the resident and non-resident
first transfers to one or more persons,
what is provided by the subparagraph
39.2.1.5 of the Tax Code of Ukraine. 
If earlier these rules were applied only to
the non-residents, who were related to the
taxpayer, then from January 01, 2019 they
apply to all business transactions between
the taxpayer and non-resident, provided
for by subparagraph 39.2.1.1 of Article No.
39 of the Tax Code of Ukraine. In
particular, if in the chain of such
transactions, the ownership of the item
(result) of the transaction before moving
from the taxpayer to such non-resident (in
the case of export transactions) or before
switching from such non-resident to the
taxpayer (in the case of import
transactions) goes to one or more persons
and the transaction between the resident
and these persons was not recognized as
the controlled transaction by the tax
payer, such transaction is considered the
controlled transaction between the
taxpayer and such non-resident, if the
persons, who transferred the right of
ownership:
• In such transactions do not perform the
essential functions related to the
purchase (sale) of goods (works,
services);
• Do not use the significant assets and / or
do not assume the significant risks for
organizing the purchase (sale) of goods
(works, services).
At the same time, the essential functions
are the functions that the parties to the
controlled transaction could not perform
independently in their normal activities
without involving other persons and using
the assets of such persons.
The significant assets are the assets, whose
usage is necessary in carrying out such
transactions and which are not available to
the parties to the controlled transaction.
By the significant risks are meant the risks
that must be accepted for the business
practice of such transactions 
21

As for the third criterion, its detailed
analysis is given in the Table no. 1 below.
Please note that in determining the value
indicator there is an exception, in
particular, business transactions carried
out between the non-resident and its
permanent representative office in Ukraine
are considered to be controlled, if the
volume of such business transactions,
determined according to the accounting
rules, exceeds 10 million UAH (excluding
the indirect taxes) for the relevant tax
(reporting) year. So, in this case the
taxpayer’s annual income is not taken into
account. 
T A B L E N O . 1 . T H E C R I T E R I O N F O R E S T A B L I S H I N G A
VA L U E I N D I C A T O R ( B O T H C O N D I T I O N S A R E
N E C E S S A R I LY A P P L I E D A T T H E S A M E T I M E ) , W H I L E T H E
V O L U M E O F B U S I N E S S T R A N S A C T I O N S O F T H E
T A X P AY E R I S C A L C U L A T E D A T P R I C E S T H A T
C O R R E S P O N D T O T H E A R M ’ S L E N G T H P R I N C I P L E  
2 2
Provision of the Tax Code of
Ukraine
Type of income Requirements in numbers
Unnumbered paragraph 2 of
subparagraph 39.2.1.7 of
Article No. 39 of the Tax
Code of Ukraine
The annual income of the taxpayer from
any activity, which is determined
according to the accounting rules for the
relevant tax (reporting) year.
Exceeds 150 million UAH
(excluding the indirect taxes)
Unnumbered paragraph 3 of
subparagraph 39.2.1.7 of
Article No. 39 of the Tax
Code of Ukraine
The income of the taxpayer with the
particular counterparty, determined
according to the accounting rules for the
relevant tax (reporting) year.
Exceeds 10 million UAH
(excluding the indirect taxes)

T H E C O M P A R I S O N O F
C O N T R O L L E D
T R A N S A C T I O N S A N D
U N C O N T R O L L E D
T R A N S A C T I O N S
When specifying the correspondence of the
implementation of the arm’s length
principle to the controlled transactions, it
is necessary to compare such transactions
with uncontrolled transactions. In
particular, for the purposes stipulated by
the Tax Code of Ukraine, the controlled
transactions are considered comparable to
uncontrolled, if:
There are no significant differences
between them, which can significantly
affect the financial result in the course of
applying the appropriate transfer pricing
method;
Such differences can be eliminated by the
adjusting the conditions and financial
results of the controlled or uncontrolled
transaction in order to avoid the effect of
such differences on comparability.
In determining the comparability of
transactions, the following elements of the
controlled and comparable transactions are
analyzed:
The characteristics of the goods (works,
services) that are the subject of the
transaction;
The functions performed by the parties to
the transaction, the assets they used, the
distribution conditions of risks and benefits
between the parties to the transaction,
the liability distribution between the
parties to the transaction and other
conditions of the transaction (hereinafter
referred as “ the functional analysis”);
The constant practice of relations, the
terms and conditions of agreements
concluded between the parties to the
transaction that significantly affect the
prices of goods (works, services);
The economic conditions of activity of the
parties to the transaction, including the
analysis of the relevant goods market
(works, services) that significantly affect
the prices of goods (works, services);
The business strategies of the parties to
the transaction (if any) that significantly
affect the prices of goods (works,
services).
If the information necessary to determine
the profitability ratio is not available or
there is incomplete information on
individual uncontrolled transactions, the
financial information of the legal entities
carrying out the activities comparable to
the controlled transaction can be used,
provided that there is information that
these legal entities do not carry out the
transactions with the related persons.
We would like to note the characteristics
that (except for those that were specified
in the Tax Code of Ukraine earlier) are
taken into account from January 01, 2019
with the comparability of the indicated
transactions:
In accordance with the subparagraph
39.2.2.9 of Article No. 39 of the Tax Code
of Ukraine, when determining the
comparability of the commercial and / or
financial conditions of comparable
transactions with the conditions of the
controlled transaction, the characteristics
2 3

of the assets used by the parties in the
controlled transaction can also be taken
into account, in particular, but not
exclusively: the type of asset (production
equipment, intangible assets, financial
assets, etc.); the nature of the asset (age,
market value, location, protective rights,
etc.). At the same time, the determination
and analysis of the impact of intangible
assets on the conditions of controlled and
comparable transactions are carried out
taking into account, in particular, but not
exclusively: the legal possession of the
intangible assets and contractual terms of
t h e i r u s e ; t h e c a t e g o r i e s a n d
characteristics of such intangible assets
(exclusivity, degree and duration of legal
protection, geographical scope, useful life,
development stage, etc.); the contractual
and actual activities of the parties related
to the development, improvement,
support, protection and operation of such
assets.
If the actual conditions of controlled
transaction do not correspond to the
conditions of the concluded (written)
agreement and / or the practical steps of
the parties to the controlled transaction,
t h e a c t u a l c i r c u m s t a n c e s o f i t s
implementation differ from the terms of
such agreement, the commercial and / or
financial characteristics of the controlled
transaction for transfer pricing purposes
determined according to the practical
steps of the parties to the transaction and
t h e a c t u a l c o n d i t i o n s f o r i t s
implementation.
If the controlled transaction was actually
carried out but was not documented (not
confirmed), for the transfer pricing
purposes it should be considered according
to the actual behavior of the parties to the
transaction and the actual conditions for
its implementation, in particular the
following aspects are taken into account:
the functions that were actually performed
by the parties to the transaction, the
assets, which were actually used, and the
risks that each of the parties actually
assumed and controlled.
Advance pricing in controlled transactions.
The current tax legislation allows the large
taxpayers to apply to the central executive
body, which implements the state tax and
customs policy with the statement on prior
approval and pricing in controlled
transactions.
The advance pricing in controlled
transactions is a procedure between large
taxpayer and the central executive body
implementing state tax and customs policy,
during which the following aspects are
agreeing: the criteria for determining the
compliance of the conditions of the
controlled transactions that are carried out
or will be carried out by such large
taxpayer to the arm’s length principle on
the basis of the fixed-term agreement.
The agreement concluded as a result of
the advance pricing in controlled
transactions between the large taxpayer
and central executive body that
implements state tax and customs policy is
one-sided.
If the procedure of advance pricing in
controlled transactions involved the
foreign state body authorized to administer
taxes and fees in state, whose resident is
the party to the controlled transaction (if
there is the international treaty
(convention) on the avoidance of double
taxation between Ukraine and such state),
2 4

the agreement concluded as a result of
such advance pricing between the large
taxpayer and the central executive body
authority implementing the state tax and
customs policy, is bilateral.
If the procedure of advance pricing in
controlled transactions involved two or
more foreign state bodies authorized to
administer taxes and fees in state, whose
resident is the party to the controlled
transaction (if there is the international
treaty (convention) on the avoidance of
double taxation between Ukraine and such
state), the agreement concluded as a
result of such advance pricing between the
large taxpayer and the central executive
body authority implementing the state tax
and customs policy, has the multilateral
nature.
The procedure for advance pricing in
controlled transactions and agreements
concluded, which are one-sided, bilateral
and have the multilateral nature, was
approved by the Resolution of Cabinet of
Ministers of Ukraine No. 504 dated July 17,
2015 (as amended by the Resolution of
Cabinet of Ministers of Ukraine No. 518
dated July 04, 2018).
If the terms and conditions of the advance
p r i c i n g a g r e e m e n t i n c o n t r o l l e d
transactions have been met, the
controlling authorities are not entitled to
decide on the additional charge of tax
obligations, fines, and penalties for
controlled transactions, which are the
subjects of such agreement.
D R A W I N G U P O F
A C C O U N T S A N D
R E P O R T I N G T O T H E
F I S C A L A U T H O R I T I E S
The reporting period for the transfer
pricing is the calendar year. The taxpayers,
who carried out the controlled transactions
in the reporting year, are required to
submit a report on controlled transactions
to the central executive body, which
implementing state tax and customs policy,
before October 01 of the year following
the reporting using electronic means of
electronic communication in compliance
with the legislation on electronic
document exchange and digital signature.
The form and procedure for filling the
Report on Controlled transactions are
approved by the Rule of the Ministry of
Finance of Ukraine dated January 18, 2016
under No. 8.
The Report on controlled transactions
shall contain information on all controlled
transactions carried out by the taxpayer in
the reporting period. If the taxpayer has
revealed that the information on the
controlled transactions previously
submitted is not fully provided, contains
some errors or flaws, such taxpayer has the
right to submit a new report before the
deadline for submitting such reports on
controlled transactions for the same
reporting period, or a clarifying report in
case of its submission after the deadline
for the relevant reporting period.
However, it should be noted that the
submission by the taxpayer of a clarifying
report on controlled transactions does not
exempt from the responsibility provided
for by the subparagraph 120.3 and
2 5

subparagraph 120.4 of Article No. 120 of
the Tax Code of Ukraine.
In addition, during the documentary audit,
the taxpayer is not entitled to submit a
c l a r i f y i n g r e p o r t o n c o n t r o l l e d
transactions.
In accordance with the requirements of the
subparagraph 39.4.3 of Article No. 39 of
the Tax Code of Ukraine, the taxpayers
conducting controlled transactions must
prepare and keep transfer pricing
documentation for each reporting period.
At the request of the central executive
body that implements the state tax and
customs policy, the taxpayers provide,
within 30 calendar days from the date of
receipt of the request, the documentation
on the transfer pricing on controlled
transactions specified in the request. Such
transfer pricing documentation is provided
by the taxpayer to the controlling
authority specified in the request.
At the same time, we call your attention to
the fact that the request can be sent by
the central executive body that
implements the state tax and customs
policy no earlier than October 01 of the
year following the calendar year, in which
such controlled transaction (transactions)
was carried out. 
2 6

T H E A C Q U I S I T I O N O F
T H E R I G H T T O O N E - S I D E
T E R M I N A T I O N O F
A G R E E M E N T
The Law of Ukraine “On amendments to particular legislative
acts of Ukraine concerning corporate agreement”, which
amended the Civil Code of Ukraine, the Law of Ukraine “On
joint-stock companies”, the Law of Ukraine “On securities
and the stock market” and introduced new instruments,
came into force: an agreement on the enforcement of the
rights of the participants (founders) of the limited liability
company, an agreement between the company’s
shareholders, an irrevocable power of attorney for corporate
rights.
On February 06, 2018, the Law of Ukraine “On limited and
additional liability companies” was adopted, which regulates
in more detail the activities of the limited and additional
liability companies, and specifies a part of the concepts
introduced by the analyzed Law.
However, the issue of the compliance of provisions of the
Law of Ukraine “On amendments to particular legislative acts
of Ukraine concerning corporate agreement” to the
provisions of the Law of Ukraine “On limited and additional
liability companies” requires the further study.
2 7
Belaya Yana
LITIGATION
DEPARTMENT
Associated partner, attorney at

N E W R I G H T
The Law “On amendments to particular
legislative acts of Ukraine concerning
corporate agreement”, in particular
supplemented the Civil Code of Ukraine
with the Article No. 658 “The acquisition of
the right to one-side termination of
agreement” to read as follows:
O N N O T I C E
“The parties to the purchase and sale
agreement can agree that one party
acquires from the other party the right to
terminate this agreement unilaterally.
The purchase and sale agreement is
terminated if the party, which acquired the
right to terminate the agreement in
accordance with the first subparagraph of
this article, does not declare the
requirement to fulfill the agreement for
the certain period. The parties may cause
the termination of the purchase and sale
agreement by the performance of certain
actions by the party or the occurrence of
certain circumstances during the certain
period or at the certain time.”
This amendment appeared in the text of
the draft law only in the second reading,
which means that the addition of the Draft
article No.658 of the Civil Code of Ukraine
does not meet the requirements of the
Article No. 116 of the Regulations of the
Verkhovna Rada of Ukraine, since these
n o r m s w e r e n o t t h e s u b j e c t o f
consideration in the first reading. This, in
particular, is emphasized in the comments
of the General legal department to the
text of the draft law for the second
reading. However, although under the
different name, the article was accepted.
Please note that this article is included in
the chapter of the Civil Code of Ukraine
named “Purchase and Sale”, so it can be
applied to the agreements of purchase and
sale, supply, agreements for the delivery of
agricultural products, supply of energy and
other resources through the connected
network, barter.
Of course, these provisions have not yet
been widely applied, and the practice of
their implementation in the agreements
will still be developed.
As a general rule, the agreement can be
terminated by the mutual agreement
between the parties. Thus, in accordance
with the Article No. 525 of the Civil Code
of Ukraine, unilateral refusal of the
obligation or unilateral amendment of its
conditions is not allowed, unless otherwise
provided by the agreement or law. Thus,
even before the introduction of Article No.
658 the unilateral termination of
agreements, including purchase and sale
agreements, could be allowed, if the
parties agreed.
The new article allows the counterparties
(but does not obligate imperatively) to
agree in the agreement the possibility of
one party to acquire the right to one-side
termination of agreement, so:
the party acquires such right (it receives
the fee);
the parties may establish that the party
may terminate an agreement after it has
completed certain actions, certain
circumstances (for example, compensation
to the other party for the losses related to
performance of the agreement);
2 8

the acquired right to one-side termination
of the agreement may be limited in time
(term or date);
the party that acquired the right may
refuse it by stating the requirement to
fulfill the agreement;
the right of the party to refuse termination
is limited to the period specified in the
agreement.
A S T H E P R A C T I C A L
M A T T E R
Let’s simulate the situation in which this
rule can be applied.
The parties enter into the agreement for
purchase and sale of the property rights to
real estate, providing for the seller’s right
to unilaterally terminate the agreement
(to refuse to fulfill its obligations to
transfer property rights to real estate) for
the nominal fee. This will allow the seller
to use the funds received from the
purchaser for the construction of the
object, and in the future to abandon the
agreement, making the compensation the
purchaser for the certain amount, and
transfer the object to another purchaser
(for example, after the commissioning of
the house) at the higher price - the only
question is the reputation of the seller and
the care of the purchaser.
Thus, it is inappropriate to say that the
right to unilateral termination is a novel,
but now the legislator has allowed the
parties to receive payment for it.
 
2 9

W H A T I S A N
A G R E E M E N T O N T H E
E N F O R C E M E N T O F T H E
R I G H T S O F T H E L L C ’ S
P A R T I C I P A N T S A N D
W H Y D O YO U N E E D T O
U S E I T ?
Having left the escrow accounts under the holiday tree, the
parliamentarians continue to delight with the useful
instruments, this time those, who work with the corporate
law. Speech on the amendments provided for by the Law of
Ukraine “On amendments to particular legislative acts of
Ukraine concerning corporate agreement”.
The law introduces a number of new institutions successfully
operating in international corporate practice, namely: an
agreement on the enforcement of the rights of the
participants (founders) of the limited liability company, an
agreement between shareholders and the irrevocable power
of attorney on the corporate rights of the joint-stock
company and the limited liability company.
In this article we will try to analyze the practical aspects of
applying the agreement on the enforcement of the rights of
the participants (founders) of the limited liability company
(hereinafter referred to as “the agreement”), study its terms
and conditions and distinctive features, assess the risks and
develop the recommendations for the implementation of
such instrument.
3 0
Ovsii Dmytro
HEAD OF LITIGATION
Managing partner, attorney at law

L A W A N A LY S I S
The issues of application of the agreement
on the enforcement of the rights of the
participants of the limited liability
company are written out in sufficient
detail. It can be concluded between the
participants or the founders of such
company, while not necessarily between all
participants. It is also possible to conclude
such several agreements between the
different participants, which make it quite
flexible and practical.
The agreement may provide for both
positive (to do something) and negative
obligations (to refrain from doing
something). For example: vote in the
certain way; purchase or sell a share at the
predetermined cost; in the event of the
certain circumstances to refrain from
purchasing the share until the occurrence
of other circumstances, specified in the
agreement, and others.
The design of the norm allows you to set
other obligations individually for each
case.
The parties may independently determine
the conditions (the procedure for the
determining,) under which the right or
obligation arises to purchase (sell) the
share in the company. Such conditions may
be depend or may not be depend on the
parties.
The form of the agreement is written,
there are no requirements for the notarial
form. However, the authenticity of the
signatures of the participants (founders) of
the company – individuals in such
agreement is certified in the prescribed
manner by the notary, local governments,
consulates, etc.
The legislator has imposed a ban on the
voting by the participants in accordance
with the instructions of the management,
except in cases when one of the
participants is the management body. The
clause violating this prohibition is void.
The agreement can be either fixed or
termless. The parties may independently
establish the date of its entry into the
force; however, within three days from the
date of its conclusion, they are obliged to
notify the company of such agreement.
It is worth mentioning that the terms of
the agreement are confidential, unless it
provides otherwise.
The terms of the agreement on the
enforcement of the rights of the
company are obligatory only for its parties.
At the same time, the law allows the
conclusion of the agreement on
management of corporate rights between
the participant of the company and the
creditor. To such agreement, the norms of
the agreement on the enforcement of the
rights of the participants of the limited
liability company are applied.
If the agreement provides for the right
(obligation) to sell the share, the
interested party may apply to the court
with the requirement to sell (purchase) it.
This provision is rather trivial and in no
way expands the existing methods of the
protection of rights, in particular the
fulfillment of obligation in kind.
The agreement may determine the liability
for violation of the obligations provided for
31

therein and ways of securing them, which,
together with other means of securing
obligations (pledge, charge, mortgage,
surety), provides the good set of the
instruments.
T E R M S A N D C O N D I T I O N S
O F T H E A G R E E M E N T
The law does not provide for the essential
terms of agreement on the enforcement of
the rights of the participants of the limited
liability company. But given that it is not
new, there are many possible conditions
and ways to structure the agreement.
Although in each case the parties are free
to determine independently the structure
of the agreement, we recommend the
following sections.
K E Y F U N C T I O N S O F T H E
P A R T I E S A N D T H E
P U R P O S E O F T H E
A G R E E M E N T
The agreement should not duplicate the
memorandum of association or the charter;
the parties should clearly understand the
purpose of its conclusion. In this section,
they can define the basic functions of their
obligations. All that was previously drawn
up by the heads of agreement and
memorandums can be settled in the
agreement.
Now, if the partner expects from the other
party the customer acquisition, performing
certain works or provide services, you can
write about this in the agreement and even
establish sanctions for the non-fulfillment
of such obligations.
E T H I C A L R E L A T I O N S H I P
The ethical relationship between the
partners can also be settled with the help
of agreement on the enforcement of the
rights of the participants of the limited
liability company. The agreement may
provide for measures of responsibility or
the obligation not to perform the certain
actions.
Using the same section, cases of conflict of
the interest, non-attendance of meetings,
and disclosure of the confidential
information can be resolved. It also
includes provisions to prevent the undue
intervention of the participants in the
affairs of the company.
Another example is the provisions on the
attitude of participants to the settlement
of relationships with suppliers and / or
customers. In particular, the participants
may refuse to negotiate deals with the
companies, which do not comply with the
certain environmental standards, and
others.
E M P L OY E E A N D
M A N A G E M E N T P O A C H I N G
If the company’s participants are its direct
competitors, in order to remain the
competitive capability it is acceptable to
include some restrictions regarding the key
employees and management poaching.
Such restrictions may consist in the
obligation not to hire the former
employees and management for the
certain period.
3 2

W O R K W I T H
C O U N T E R P A R T I E S T H A T
A R E R E L A T E D W I T H T H E
P A R T I C I P A N T S
In other cases, the participant of the
limited liability company may be its key
partner. The agreement can fix the
obligations regarding the delivery of goods,
the performance of works or services under
certain conditions and others.
Also, do not forget about anticompetitive
norms and concerted actions for which
responsibility is provided. Although such
agreement is confidential, the disclosure
of its terms and conditions may be
interpreted as the violation.
D I S P U T E R E S O L U T I O N
P R O C E D U R E S
In addition to the classical procedure for
the dispute resolution in court, this section
may include the arbitration or mediation
(including with the participation of other
participants). If the participant of the
company is the non-resident, the parties
may also determine the law applicable to
such agreement.
D E C I S I O N M A K I N G I N
C A S E O F D E A D L O C K
Perhaps one of the most useful sections.
Often in the limited liability company
there are two partners and also the ratio
of shares between them is 50/50. In fact,
this means the mandatory coordination of
key decisions between them.
In practice, often there are situations,
where the key decision (coordination of
the necessary transaction / deal, director
change) cannot be made due to the
corporate conflict, named “deadlock”. The
share of each partner is enough to block
the decision of the second partner.
Possible exits: the liquidation of the
company; the exclusion of one of the
participants; compulsory redemption of
shares on the conditions specified in the
agreement. It allows you to get out of the
uncomfortable partnership and, in some
cases, to preserve the company or its
assets.
A C C E S S T O I N F O R M A T I O N
In addition to the basic provisions of the
charter, an agreement on the enforcement
of the rights of the participants of the
limited liability company may provide for
the access to more information or access
of participants to information about each
other. Here you can provide for the
responsibility for withholding of the
information.
V O T I N G O N T H E K E Y
D E C I S I O N S
The charter of any company contains a list
of issues that are decided by the majority.
By supplementing the charter, the
provisions of the agreement may expand
such list; often such issues include the
following: the asset management,
coordination of the debt relations, the
management change.
Considering that an agreement on the
company may be concluded between the
part of participants (group), the latter can
3 3

settle the relationship, how to vote
according to the acceptable ways to such
group.
Another interesting option is to give the
participant, who not owning a significant
share, a veto right. It works like this: in
the event that such participant voted
against or abstained, the decision is
considered to be not adopted, even if it
received the majority of votes.
However, in this case, the agreement must
be concluded between all participants,
since the consequences of such right affect
all participants.
R E L A T I O N S H I P W I T H
M A N A G E M E N T
The agreement may also provide for the
right of certain participants to offer a
candidate to the company’s management
or to limit this right. The right can be
exclusive (the candidates can only be
offered by this participant) or preferential
(his candidate will be prioritized).
The same may apply to the recall of the
management.
S H A R E S A L E
Of course, the owner of the majority share
of powers has much more rights and
competences. In most cases, the transfer
of rights of such share actually means the
transfer of ownership to the company.
At the same time, the fate of minority
shareholders is not very bright - the sale of
share by its holder of the main share
threatens them with a new and
unpredictable, and possibly, unprofitable
partnership.
The agreement may include several
scenarios for the sale of the limited
liability company:
the right to sell a minority share on the
same conditions as the share of the main
participants (tag-along right), which allows
the minority shareholders to join the deal
and receive the payment similar to
payment of the majority shareholder;
the right of the majority shareholder to
demand that the minority shareholders sell
their shares (drag-along right). Such
scenario allows the company’s purchaser to
buy a share from the minority shareholders
under certain conditions.
In addition, the agreement may provide for
the priority right to purchase a share in the
event of sale. Such right differs from the
last scenario in that the purchaser is not
exist yet and the initiative to sell the share
does not come from outside - from the
purchaser of the share, but from the
participant of the company.
The charter of the company gives similar
powers, but such right may not be granted
to all of its participants, but to the party -
a party to the agreement, and / or on the
certain conditions.
The prohibition on the sale of shares is
another way to regulate the relationship of
participants of the company. Such
prohibition may be either fixed or termless
for the whole effective period of the
agreement.
3 4

S E C U R I N G O B L I G A T I O N S
Given that the agreement on the
company is fully covered by the rules on
ensuring the fulfillment of obligations, the
obligations provided for them can also be
ensured.
L I A B I L I T Y
In our contractual culture, the obligations
not backed by the sanctions unfortunately
work poorly. Therefore, the key conditions
for the parties should be supported by
measures of the liability for lack of
performance (or the performance) of the
certain actions.
In addition to the classical sanctions, an
agreement can contain such specific type
of liability as transferring the purchaser’s
rights to the party to agreement.
R E P R E S E N T A T I O N
To fulfill certain conditions of the
agreement, the parties may provide for the
issuance of the irrevocable power of
attorney for corporate rights. By the way,
this instrument is so interesting and self-
sufficient that it deserves a separate study.
M A N A G E M E N T O F T H E
S H A R E I N C A S E O F
U N F O R E S E E N
C I R C U M S T A N C E S
The parties may also determine the
procedure for managing the corporate
rights (their share) in the event of
unforeseen circumstances (recognition of
the participant as missing, dead or dying).
For example, in this case, before the heir
of the rights is registered, the payment of
dividends can be sent to the relevant
person (family members).
But, as already mentioned, each case is
individual, and therefore the agreement
c a n b e c o m p l e t e d a n d a d a p t e d
haphazardly.
L A W E N F O R C E M E N T T I P S
The agreement as an instrument for
regulating relations between the partners
is universal and can be used in the variety
of cases: to protect the rights of the
minority shareholders; setting a stalemate
partnership; additional regulation of the
procedure for making key decisions in
cases, where there are 3 or more founders
of the company and there is no right
understanding between them; the
registration of partnership purposes and
additional obligations of the partners in
business; formalizing arrangements while
retaining the confidentiality; flexible
settlement of relations between the
participants with the possibility of the
rapid change; the descriptions of the
methods of divergence of partners, if the
dispute or the conflict arose, as well as
detailed description of methods of the
arbitration, mediation, redemption of
shares, others; the application of
contractual law to the corporate relations.
Once again pay attention to the fact that
the agreement related to management of
the corporate rights between the
participant and the creditor is the subject
to the provisions of the agreement on the
3 5

company.
It makes such agreement an extremely
interesting instrument. In debt relations,
the investment projects and other cases,
where the reliability and duration of the
relationship is very important, it can be
used to make the relationship with the
counterparty more predictable. 
C O M P A R A T I V E A N A LY S I S
For a better understanding of the nature of the agreement, we will conduct a small
comparison with the similar instruments. 
3 6
The charter
An joint
cooperation
agreement
An agreement on
the enforcement of
the rights of
participants
The memorandum of heads
of agreement
Legal force
Is legally
effective
Is legally
effective
Is legally effective
Has limited legal force
(applicable either for the
interpretation of other
documents or as a legally
significant document in some
foreign jurisdictions
Signatories All participants
Contracting
parties interested
in the project
May be all
participants, may
be partially
Contracting parties
interested in the project
Tax
implications
Does not require
any accounting,
as it does not
give rise to the
rights and
obligations
Gives rise to the
rights and
obligations,
requires separate
special
accounting
Gives rise to the
rights and
obligations, it does
not give rise to the
rights and
obligations
No tax implications
Legal nature
An organizational
document
An agreement
An agreement /
organizational
document
The heads of agreement,
precontractual work
Limited access
mode
(confidentially)
No* May be
Yes, unless the
otherwise provided
by the agreement

*According to the Resolution of the Cabinet
of Ministers of Ukraine dated August 09,
1993 under No. 611 “On the list of
information that is not commercial
secret.”
I N S T E A D O F C O N C L U S I O N
In some cases, the application of the
agreement on the enforcement of the
rights of participants of the limited
liability company will improve the
management of the company; increase the
security of participants and the reliability
of the partnership (project). And
therefore, instead of the usual conclusions,
we offer the checklist, which will help you
to decide whether you need such
agreement.
So, the agreement is not needed if there is
only one participant in the limited liability
company, and also if you or your client are
the majority participant of the limited
liability company.
It is recommended if you or your client: a)
is the minority shareholder; b) the
majority shareholder, but it is important to
retain the minority shareholders as the
p a r t o f t h e c o m p a n y ( i n c l u d i n g
management with the minority stake); c)
signed the heads of agreement, but there
is a desire to legalize such document, to
give it legal significance; d) want to
determine the fate of the company (your
share) in the event of the unforeseen
events; e) be in the company with several
participants and want to determine the
scope of responsibility of each participant,
the procedure for termination of such
relations, as well as to make the meeting
of the founders more predictable; f) you
want to keep the management; g) need
the access to information about the
activities of the company.
It is mandatory if you or your client: a) in
the project with complex participant is not
the majority shareholder; b) the minority
shareholder and you expect to profitably
sell your share to the main shareholder; c)
strive to prevent competition between the
company and its participant; d) want to
prevent the employee attrition in the
company; e) be in the company with 50/50
distribution of shares; f) you are the
creditor of such company. 
3 7

B E L I E V E I N YO U R S E L F
I N YO U R S U C C E S S
A N D YO U R L A W Y E R
3 8

Structuring business in Ukraine

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