Corporate Governance in Ukraine

Legal framework

Ukrainian law provides for over 20 organizational forms of business entities. However, the majority of small and medium-sized enterprises in Ukraine are incorporated as a limited liability company (LLC). There are clear legislative regulations for LLCs and joint stock companies (JSCs) in the respective since these types of companies are the most common.

The main sources of corporate governance requirements for LLCs and JSCs are:

• Civil Code of Ukraine;

• Commercial Code of Ukraine;

• Law on Limited and Additional Liability Companies;

• Law on Joint Stock Companies. 

In addition, there is specific legislation for state-owned and municipal enterprises as well as for banks.

As a soft law source, the National Securities and Stock Market Commission adopted the Core Code of Corporate Governance: Requirements and Recommendations aimed to serve as general guidelines for Ukrainian companies.

Additionally, Ukrainian law contains general corporate governance provisions regarding entities established in other forms; however, in such cases, detailed provisions regarding corporate governance are expected to be included in the charter and other internal documents.

Corporate structure

The highest governing body in a LLC is the general meeting of participants (GM) which is entitled to make decisions on any issue in the company. Some questions such as payment of dividends or charter amendment in a LLC belong to the exclusive competence of the GM.

The executive body (collective or an individual CEO) handles day-to-day operations. A supervisory board in a LLC is optional.

In JSCs, the GM is the highest governing body with exclusive competence in such issues as charter amendment, payment of dividends, issue of additional shares, election of board members and some other vital matters. Until the recent changes in the Law on JSCs, the GM had the right to decide on any matter. However, since May 2018, the GM cannot overcome the exclusive competence of the supervisory board. The only exemption from this rule are private JSCs. They can grant the GM with unlimited powers in the charter, including the powers to consider matters belonging to the competence of the supervisory board.

Until the end of 2022, only a two-tier model of governance was applied in Ukrainian joint-stock companies. However, as of January 1, 2023, a one-tier structure of corporate governance became available for JSCs.

JSCs may decide to transition from one management structure to another, which is not considered a reorganization. At the same time, cases where a one-tier structure is mandatory may be established by special laws. Currently, such conditions are not defined, however, as before, the two-tier structure of corporate governance remains mandatory for certain types of companies. For example, for state banks, where it is necessary to establish a supervisory board.

Generally, there are few public (listed) companies in Ukraine – only a few large companies and banks.

Еhere are special rules for large companies regarding the establishment of the supervisory board committees and mandatory appointment of the corporate secretary. The special requirements also apply to public (listed) JSCs, banks, insurance companies, and capital markets institutions. These requirements mainly relate to:

• mandatory corporate bodies – the establishment of the supervisory board is necessary for all such companies,

• minimal number of the supervisory board and executive body members – for instance, the supervisory board of a bank should consist of no less than five members,

• independent directors – in banks one-third of the supervisory board but not less than three members must be independent,

• committees of the supervisory board and executive body – the supervisory board of an insurance company must have risk management, compliance, and internal audit committees; the supervisory board of the capital market institutions – a risk management committee; the executive body of the bank has to establish such committees as a credit committee and an assets and liabilities management committee.

The requirements regarding public disclosure of regulated information are imposed on the JSCs and other types of companies issuing securities. Thus, these rules are not applicable to most LLCs.

The information is to be submitted to the National Securities and Stock Market Commission, indicated on the website, and provided to the authorized regulated information agency.

The main regulator authorized to monitor the fulfillment of obligations regarding corporate governance is the National Securities and Stock Market Commission. At that, its competence is limited to JSCs and other types of companies that have issued securities. LLCs have much more flexibility in terms of disclosing such information.

The activity of banks and insurance companies is overseen by the National Bank of Ukraine.

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Sources:

CEE LEGAL MATTERS COMPARATIVE LEGAL GUIDE: CORPORATE GOVERNANCE 2023 UKRAINE by Yana Babych

Ukraine: Corporate Governance Published: The In-House Lawyer, 27 March 2019