SHAREHOLDER AGREEMENTS: ADVANTAGES FOR BUSINESS PARTNERS

Limited Liability Company is the most prevalent form of business in Ukraine – there are about 600 thousand companies, which is half of all legal entities. In order to be competitive on the market, it is necessary for any company to look for modern solutions to internal problems.

In 2018 the Law of Ukraine “On Limited and Additional Liability Companies” was passed. It introduced the new category for the Ukrainian business – the “shareholder agreements”.

However, despite its reputation abroad, this definition is unclear for Ukrainians. The law describes the mechanism of management in the company with this agreement very shortly, so it’s no wonder that businessmen don’t know how to answer the question:”what do the shareholder agreements mean and why should I use them?” and continue working with typical provisions of the contract which are not  effective when the company is  developing or has specialization in innovative areas.

Let’s understand everything.

What is it?

The shareholder agreement is an agreement between the shareholders whereby the shareholders undertake to carry out their rights in certain manner or refrain from carrying out them. It can be the additional way of protection the shareholder’s rights. Also it is more flexible and detailed compared to charter and founding agreement.

Who can enter into the contract?

Shareholders can enter into a contract. There are no limits: the agreement can be entered between all shareholders as well as between few of them. The shareholder is allowed to be a part of two or more agreements if these agreements are not contradictory.

What relationships can be regulated by the contract?

  • the order of making decisions by General meeting: the shareholders are not allowed to block the decisions which should be made unanimously; they should issue a power of attorney if they are absent on meeting;
  • conflict resolution strategies:  the shareholder who has more than 50% can demand sharing buybacks in such cases: disagreement, absence at the meeting, conditions which complicate management (the list of cases can be extended);
  • sanctions for shareholders if they refuse to sell the buyback (fine (penalty) for every day of delaying);
  • additional conditions about privacy;
  • non disclosure agreement (NDA) about Limited Liability Company;
  • obligation to sign the contract for  new shareholders;
  • transfer of rights and obligations under the contract in case of transfer of rights to the share buybacks;
  • refusal of selling buybacks during the few years (for example, 5 years);
  • obligation to inform about signing other  shareholder agreements.

Are there any limits?

The shareholder agreement can’t contradict the charter of Limited Liability Company and the Ukrainian legislation. But it can otherway regulate the order of realization different rights of the shareholder in comparison with the charter.

YOU CAN’T force the shareholders to vote in accordance with the instructions of the director.

What advantages are the contract gives?

  • Flexible and detailed regulation

Very often the charter consists of standardized conditions which can’t consider all nuances of management. But, to succeed in business today, you need to use not only typical mechanisms. There is the need to regulate all disadvantages. Shareholder agreement regulates different ways of realization shareholder’s rights and obligations and answers the question: «How the management can be organized?».

  • Privacy

The charter needs the state registration, it is available for the counterparties and located in the registration case. The shareholder agreement is confidential. It is important because very often company is not interested in public disclosure of internal information. Only the shareholder of the contract can reаd the contract (for example, the director, employees, creditors and other persons can’t do this). So this agreement must be in writing and it is confidential, except when one of its parties is public person (state, local community, state company, municipal enterprise).

  • Guarantees in the court

Other agreements, which are entered by the shareholder and breached the contract are illegal from the moment them are made. It provides the priority of shareholder agreement over other acts and guarantees that in case of conflict the court will analyze the shareholder agreement.

  • Guarantees about liabilities

The agreement contains different sanctions for shareholders such as fine or penalty. It encourages the shareholders to perform a particular contract and protects their rights and interests.

  • Securing from conflicts

Very often companies are established by the partners with equel shares. This mechanism is not very reliable because of the occurrence of conflicts which can block the management or
make it impossible. In this contract the shareholders can regulate the order of solving problems.

  • Availability

The shareholder agreement is not very costly way, but it effectively helps to avoide the conflicts between shareholders about the order of  management and secures them from litigation.

  • Protection of shareholder’s interests

You can make changes or additions to the contract only if all shareholders give their permission.

We recommend for business partners to use this contract because it gives a lot of opportunities for regulation relationships inside the company. But we draw Your attention that signing the contract is not enough to develop Your business, it is important to make this contract detailed, accurate, thoughtful. In addition, there are no standardized shareholder agreements – the individual orientation is their main characteristic.

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Digital currency is part of the concept, but other instruments, such as tokens, NFTs, or even in-game items, fall under the definition. Actually, the actual existence of most digital products, having a certain value, is due to the software environment (ecosystem), either it is blockchain technology, a trading platform, or an online game server. It should be noted that the attempt to define virtual assets was already made in the adopted Law of Ukraine in counteracting money laundering. In this act, they understand it as digital means of payment, which goes against the new definition. As a result, there are now two different explanations for virtual assets, which causes significant confusion not only in regulation but also in interpretation. It is definitely necessary to expect clarifications from competent state bodies. Let's return to the new law. Its application covers legal relations in which the "Ukrainian element" is present:  provider or recipient of services represented in Ukraine;  an agreement according to which the turnover of virtual assets is carried out in accordance with Ukrainian legislation;  the acquirer of assets (or both counterparties) is a resident(s) of Ukraine. The law also introduces an interesting division of all virtual assets into two groups: secured and unsecured. Here again, there is a problem of interpretation. The first category includes products exchanged for (state) currency, the second category includes instruments that can be exchanged only for other digital assets. There is an alternative opinion: that the turnover of secured assets is supported by real goods (money or other property), while unsecured ones are not supported by anything. The latter interpretation is the most credible, as the new law stipulates that virtual assets are NOT means of payment. 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Actually, any mediation is based on the public share offering. That is why it is subject to licensing. How to get a license? A company that wishes on legal grounds to engage in virtual assets must satisfy legislative requirements. The key role is played by the minimum amount of the statutory capital, which equals 1,19 million hryvnyas (for non-residents it is 5,95 million hryvnyas) in case of storage and administration. For other types of activity (trading, translation and mediation services) the minimum size of the statutory capital amounts to 595 thousand hryvnyas (for non-residents is 2,98 million hryvnyas). The order of the registration of license:  to compose an application and prepare documents.  to pay state fee (68-136 thousand hryvnyas for residents and 340-680 thousand hryvnyas is for non-residents).  to pend review of the request (30 days).  to get a license. The duration of the license is 1 year. 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The adoption of the law by the parliament is a significant step forward in adjusting and legal market of virtual assets creation in Ukraine. However, the new rules haven`t come into effect yet - their term of introduction depends on making amendments in the Internal Revenue Code. It is yet unknown, when a legislator will decide to enter the renewed system of taxation for such assets. Being "IT-hub" and territory, where cryptocurrency enjoys large popularity, the question of taxes must be decided maximally safely. Despite the presence of obvious gaps in interpretation, a new law on virtual assets gives the official narrative of what takes place and that, how the legal relationships related to cryptocurrency will be regulated. It is to be hoped that in the nearest time the Ministry of digital information will give out the detailed explanations concerning debatable norms.
20/01/2022

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