LEGAL ISSUES WITH REGARD TO BUSINESS OPERATIONS AND INVESTMENT 2004 IN UKRAINE CTOBER O 3000 Km 3000 Mi. Scale at the Equator. LEGAL ISSUES WITH REGARD TO BUSINESS OPERATIONS AND INVESTMENT IN UKRAINE . Table of Contents ACKNOWLEDGEMENTS..........................................................................................................................................4 PREFACE....................................................................................................................................................................5 I. EXECUTIVE SUMMARY......................................................................................................................................7 II. GENERAL OBSERVATIONS ON THE MODERN UKRAINIAN LEGAL ENVIRONMENT FOR BUSINESS ACTIVITY...................................................................................15 III. CIVIL LEGISLATION ......................................................................................................................................17 A. EXECUTIVE SUMMARY ........................................................................................................................................17 B. INTRODUCTION ..................................................................................................................................................17 C. CONFLICTS BETWEEN THE PROVISIONS OF THE CIVIL AND COMMERCIAL CODES .......................................................18 D. PROBLEMS WITH THE COMMERCIAL CODE...........................................................................................................21 E. AMBIGUITIES AND INTERNAL CONTRADICTIONS WITHIN THE CIVIL CODE .................................................................25 IV. COMPANY LAW ................................................................................................................................................31 A. EXECUTIVE SUMMARY ........................................................................................................................................31 B. PHILOSOPHY OF COMPANY LAW ...........................................................................................................................31 C. HISTORY ...........................................................................................................................................................32 D. DOCUMENTS NEEDED FOR STATE REGISTRATION OF BUSINESSES ...........................................................................33 E. NUMBER OF PARTICIPANTS IN AN LLC.................................................................................................................34 F. C OMPOSITION OF LLCS’ MANAGEMENT BODIES....................................................................................................35 G. SELLING A PARTICIPATORY INTEREST IN AN LLC TO A THIRD PARTY........................................................................35 H. DISTRIBUTION OF A PARTICIPANT’SINTEREST UPON WITHDRAWAL FROM AN LLC.....................................................36 I. AMOUNT OF A BUSINESS’ AUTHORIZED FUND.........................................................................................................36 J. ESTABLISHING SEPARATE SUBDIVISIONS OF A COMPANY ..........................................................................................37 K. PROBLEM OF OVERLONG NOTIFICATION PERIODS ..................................................................................................38 L. PROBLEM WITH REMOVING A COMPANY FROM THE STATE REGISTER ........................................................................38 M. ADDITIONAL MISCELLANEOUS CONFLICTS AMONG CORPORATE LAWS AND REGULATIONS..........................................39 V. ANTIMONOPOLY LAW......................................................................................................................................41 A. EXECUTIVE SUMMARY ........................................................................................................................................42 B. DEFINITIONS OF VIOLATIONS ..............................................................................................................................42 C. RULES AGAINST COORDINATED ACTIONS AND ECONOMIC CONCENTRATION..............................................................44 D. HIGH PENALTIES ...............................................................................................................................................48 E. BROAD POWERS OF THE AMC............................................................................................................................49 VI. MISCELLANEOUS: HIDDEN CHARGES AND UNNECESSARY OBSTACLES ........................................51 A. EXECUTIVE SUMMARY ........................................................................................................................................51 B. THE “90 DAYS RULE”........................................................................................................................................52 C. CORRUPTION AND OVER-REGULATION..................................................................................................................55 D. FINANCING .......................................................................................................................................................57 E. NOTARIZATION AND NOTARY FEES .......................................................................................................................58 F. O THER HIDDEN CHARGES AND OBSTACLES ...........................................................................................................58 Annex 1. Content of the Civil Code .......................................................................................................................61 Annex 2. Content of the Commercial Code..........................................................................................................63 LEGAL ISSUES WITH REGARD TO BUSINESS OPERATIONS AND INVESTMENT IN UKRAINE - © OECD 2004 3 ACKNOWLEDGEMENTS This Report has been prepared by the Russian-Ukrainian Legal Group, P.A. Washington DC/Kiev and is part of the European Union/OECD supported Project “Improving the Conditions for Enterprise Development and the Investment Climate for Domestic and International Investors in Ukraine”. The Project’s overall objectives are: First, to contribute to Ukraine’s efforts to improve the environment for enterprise development and investment and foster job creation, innovation and global competitiveness of private sector enterprises by addressing the regulatory and legal structures, institution-building and support policies and programs at national, regional and local levels; and second, to focus on how best to build indigenous capacities at central, regional and local governmental levels to face the challenges of globalisation and promote further transition to a market economy on par with the European Union, notably with regard to the environment for private sector development (including domestic and international investments). This would also help to better identify, formulate and agree on common objectives between central and local actors as well as donors within a well-established overall strategic framework. The main authors of this Report are Dr. Irina Paliashvili, Ms. Tamara Lukanina and Messrs. Dmytro Syrota, Serhiy Dzis and Richard Smith, from the law firm Russian-Ukrainian Legal Group, P. A. The Report has benefited significantly from input by Rainer Geiger (OECD), Engin Göksu (OECD), Costas Masmanidis (Black Sea Economic Co-operation – Business Council) and Jaroslav Kinach (advisor to the former Ukrainian Prime Minister). The final editing and printing preparations were undertaken by Georgiana Pop (OECD). Further guidance and comments on this Report have been obtained from numerous sources, including representatives of the public and private sector in Ukraine and representatives from bilateral and international organisations, in particular staff from the European Union delegation in Kiev, at an expert meeting on May 19th, 2004 in Kiev. The constructive advice and guidance from the participants at this meeting has helped to shape the final Report. While the Executive Summary of this Report is endorsed by the OECD Secretariat, it is noted that the background analysis remains under the main authors’ responsibility. Thus, the views expressed in this Report do not necessarily reflect the views of the OECD and its Member countries. This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union. 4 LEGAL ISSUES WITH REGARD TO BUSINESS OPERATIONS AND INVESTMENT IN UKRAINE - © OECD 2004 PREFACE Ukraine’s continuing efforts to improve the investment climate in the country are commendable. However, although much has been achieved, there remain major challenges. The Ukrainian Government and the OECD Secretariat co-operate based on their established and efficient relationship. This Report is the successful continuation of the work previously done by the OECD with regard to Ukraine. The OECD published in 2001 the Investment Policy Review of Ukraine and in 2002 the Investment Policy Review – Progress in Investment Reform. Thus, this Report is another successful step in the ongoing dialogue between the OECD and Ukraine with regard to the improvement of the