Drafting a corporate agreement

On February 18, 2018, Law No. 1984-VIII on Amendments to Certain Legislative Acts on Corporate Agreements (CAs) came into force. This legal act was adopted in March 2017.

The new Law, in particular, amended the Civil Code, laws on business entities and joint stock companies. In addition, on February 6, 2018, the Parliament adopted the Law on LLCs and ALCs.

Previously, the legislation allowed only joint-stock companies to enter into a corporate agreement if it was provided for in the charter, but now both JSCs and LLCs have this option, without reference to the charter. In addition, the procedure for their conclusion has been regulated, and requirements for their content have been established.

What is a corporate agreement and what are its advantages?

In simple terms, a corporate agreement as a type of civil law contract is a document in which its parties agree to act in a certain way. According to the current legislation, for joint-stock companies it is an agreement between shareholders, for LLCs and ALCs it is an agreement between the founders/members of the company. The document has no legal effect on other participants, founders, shareholders of the legal entity, or third parties. The law also allows for the conclusion of a CD with creditors.

The advantages of a corporate agreement include:

1. Confidentiality. Unlike the charter, which is open for review by the counterparty and subject to state registration, the information contained in the CD is confidential and not subject to disclosure. At the same time, when concluding the deed, the parties are obliged to notify the company of this fact within three business days.

2. Detailed regulation. The document is a supplement to the charter and other constituent documents and provides more effective protection of the rights of participants. Often, LLCs are established on a short notice, and there is not enough time to describe certain provisions in the charter in detail. It is only when the business starts to gain momentum that it becomes necessary to conclude an additional charter. In particular, its essential terms may include

• the obligation to vote at the general meeting;
• the obligation to coordinate the acquisition or alienation of a share/share with other participants;
• the obligation to refrain from alienating one's share or stock until a certain circumstance occurs;
• obligations of the parties to perform actions related to the management of the company, liquidation or reorganization of the legal entity;
• the right and obligation, as well as the procedure for the acquisition/sale of shares and determination of cases when such a right or obligation arises;
• other conditions.

3. Additional financial stability. For example, if one of the majority shareholders decides to sell its share, the rights of minority shareholders can be protected by establishing an obligation to approve the purchase or sale.

4. Possibility of dispute resolution, in particular in the case of voting with an equal number of votes (50/50). The document specifies the schemes and conditions for the redemption of shares by other participants ("Russian roulette", "Dutch auction", "Texas method", etc.).

5. The conclusion of a CD is an inexpensive way to settle disputes and avoid litigation.

6. The document is subject to amendment only with the consent of all parties, which protects the interests of the participants from interference without their will.

The subject matter of the agreement cannot be the obligation of a legal entity member to vote in accordance with the instructions of the governing body, unless the party is a member of such a body.

Consequences of violation or consequences of non-compliance with the terms of the agreement are not grounds for invalidating decisions of the governing body.

The act is concluded exclusively in writing.

A corporate agreement is a fairly new concept for Ukrainian law and is not sufficiently developed. Prior to the adoption of the new law, this act was defined only in the Law on JSCs. In general, experts give a positive assessment of the innovations in the regulatory framework, but at this stage a number of shortcomings in the regulatory framework have been noted. In addition to the standard provisions, the document may contain clauses that must be drafted individually. Standard samples and examples are usually not enough.

The specialists of RegService have extensive experience in the field of corporate law and are ready to offer you their assistance in drafting corporate agreements. We draft documents in accordance with the latest legal requirements, as well as taking into account the types of activities of the client's company. The main advantage of our services is the optimal price-quality ratio. You can find out more about the CDs and the cost of their execution by calling the numbers on our website. We work all over Ukraine. For those who are located in Kyiv, we offer a personal consultation in our office.

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