New law on LLCs is a boon for foreign members of Ukrainian supervisory boards

A Ukrainian law passed in mid-2018 is proving to be highly beneficial for foreigners who have seats on supervisory boards.

The Ukrainian Law On Limited Liability Companies and Additional Liability Companies, which came into force on 17 June 2018, provides comprehensive regulation for the activities of the most commonly used legal form of corporate entity in Ukraine – the limited liability company or LLC.

Although the law introduced numerous advantages in the regulation of LLCs, one of its chief innovations is providing an explicit possibility to establish supervisory boards (SB) to oversee LLC executive bodies.

The law allows shareholders to vest a SB with appropriate powers to control and supervise executive body's activities. An SB, however, is not allowed to oversee matters, outlined in the law, which are the exclusive domain of the general meeting of participants.

The number of SB members is not limited by the law, but can be determined in the LLC’s charter (i.e. there can be several members, either Ukrainian residents or foreigners). The SB members' relationship with the LLC can be based on either an employment agreement or a civil law contract.

Under the law, the election of a non-resident SB member does not necessarily trigger official employment unless the actual nature of the SB member's relationship with the LLC suggests otherwise (e.g. the SB member receives benefits commonly prescribed to employees, such as vacation time). Consequently, an LLC could engage a non-resident SB member based on a civil law contract, which would require no employment permit.

Remunerating a SB member with pay is not required if the civil law agreement between the LLC and the SB member allows for this, and the decision is reflected in the minutes of the general meeting. Ukrainian taxes, however, apply if a Ukrainian LLC remunerates a SB member, and covers expenses such as reimbursing travel and accommodation.

For more information on the ramifications of this law on Ukrainian LLCs, please contact our local experts.

Legislation:

Law of Ukraine “On Limited Liability Companies and Additional Liability Companies” No. 2275-VIII dated 06 February 2018