1. Statuary, reserve capital and funds of the joint-stock company
Share capital and capital reserve of the joint stock company. If the net assets value becomes lower than the minimal amount of the share capital as established by this Law, a company should, within 10 months starting from a date when such inconsistence arrives, remove such inconsistence or take a decision on liquidation (earlier this case was governed by part 6, art. 39 of Law No. 1576, which subjected the company to liquidation without specifying a period). From now on, a mandatory condition to increase the share capital of a joint stock company is its compliance after such increase with conditions stipulated by p. 1, art. 14 of Law No. 514 (the minimal amount comprises 1250 minimal wages) as of the date of registering amendments to the company’s charter (i.5, art.15).
Conditions have also changed with regard to capital reserve formation. Thus, in compliance with art. 15 of Law No. 514, a joint stock company is entitled to form capital reserve in amount of at least 15% of the share capital (changed from the earlier required 25%) unless the other is specified by the company’s charter.
The provision for dividends. The charter of a joint stock company may provide for creation of a special provision for paying dividends on preference shares. The State Committee for Securities and Stock Market (the SCSSM) establishes the procedure of formation and application of this reserve.
2. Types of JSCs
Public JSCs and private JSCs: general description
Law No. 514 distinguishes two types of JSCs: private and public joint-stock companies (art. 5).
A public joint stock company may perform public and private placement of shares. A public joint stock company will be obliged to undergo a listing procedure and to remain with a stock register of at least one stock exchange.
A private joint stock company may perform only private placement of shares. A quantitative composition of the joint stock company cannot exceed 100 shareholders. The charter of the private joint stock company may stipulate a preemptive right of its shareholders and the company itself to acquire this company’s shares that are offered for sale by their owner to a third party (i. 2, art. 7).
Consequences of adopting Law No. 514 for open and closed JSCs. Charters and other internal regulations of joint stock companies founded before Law No. 514 came into force, should be brought in conformity with provisions of this Law not later than within two years from the date when Law No. 514 became effective (until April 28, 2011). Besides, in the event that after Law No. 514 took effect (from April 29, 2009), the General Meeting of a JSC that had been founded before this Law became effective took a decision to change the amount of the company’s charter capital, denomination of shares and issue of securities, this company should bring its activity in conformity with this Law and incorporate relevant amendments to its charter and other internal documents (i.6 of the Final and Transition regulations). Failure of a joint stock company to incorporate amendments to its charter and other internal documents forms a basis for refusal of state registration of securities issued by this company.
3. Founding of a JSC: new procedures:
Founders of a joint stock company (hereinafter – “the JSC”) can be represented by one, two or more persons. Founders may conclude a founders’ agreement in a written form. However, in addition, if a JSC foundation involves individuals, their signatures on the founders’ agreement are subject to notary certification.
After the above-mentioned procedure, founders should register issue of shares with the SCSSM, conclude a share issue service agreement with the depository and perform placement of shares with company founders (i. 5, art. 9). The constitutive meeting of the JSC should be conducted within three months after founders have effected a full payment of the charter capital (i. 1, art. 10). The JSC constitutive meeting unanimously agrees on issues of the company foundation, charter and evaluation of property contributed by the founders as payment for company’s shares. Decisions on other issues are taken by a simple voting majority of the founders unless the other is stipulated by a founders’ agreement. This can be followed by registration of charter documents and receipt of a state registration certificate for share issue.
It is worth noting that actions which violate the joint stock company foundation procedure can result in the SCSSM’s decision to refuse registration of a report on the outcomes of closed (private) placement of shares.
The JSC’s constitutive document is its charter. Art. 13 of Law No. 514 contains data to be specified in the charter.
4. Types of shares
A JSC may place shares of two types – ordinary and preference shares.
Ordinary shares of the JSC are not subject to conversion into preference shares or other securities of the joint stock company.
A part of preference shares in the JSC’s charter capital cannot exceed 25%.
Agreements for purchase and sale of shares of a public JSC that has gone through a listing procedure at the stock exchange should be concluded at this stock exchange only. Private JSC’s shares cannot be purchased and/or sold at the stock exchange exclusive of cases when it is done by means of an auction conducted at this stock exchange.
5. Corporate governance
Procedure of calling the General Meeting and its authorities. It is stipulated that the JSC is obliged to annually call a General Meeting (annual General Meeting), which should be conducted not later than on April 30 of the year following the accountable year (art. 32). The agenda of the annual General Meeting must include issues on: approval of the JSC’s annual report; distribution of profit and loss of the company; making decisions based on the results of the report consideration by the Supervisory Board, report of the Executive Board, report of the auditing commission (auditor). In addition, the General Meeting may take decisions on any issues of the JSC’s activity.
A written notification about the General Meeting and its agenda should be sent to the shareholders by an official responsible for calling this meeting in a manner stipulated by the JSC charter not later than 30 days prior to the meeting. The Law also specifies data that should be contained in the notification (art. 35).
In the period between the date of notifying shareholders about the General Meeting and the date when this meeting actually takes place, the JSC must enable the shareholders to get familiar with documents needed for taking decisions on issues included in the agenda. Proposals of shareholders who own in total 5 or more percent of ordinary shares (changed from the earlier more than 10%) should be included into the meeting agenda.
Shareholder(s) who, as of the date of making a list of shareholders entitled to take part in the JSC General Meeting, own in total 10 or more ordinary shares, and the SCSSM may appoint their proxies for supervision of procedures of shareholders’ registration, conducting the General Meeting, voting and summarizing meeting outcomes.
The General Meeting of the JSC has a quorum on condition of registration of shareholders totally holding at least 60 percent of the voting shares (art. 42). The JSC General Meeting should pass decisions on an issue proposed for voting with an ordinary majority of votes belonging to shareholders registered for participation in the General Meeting and owning shares taking part in a relevant vote, exclusive of cases when this Law prescribes otherwise.
Candidates who have collected the largest number of votes among those who collected more than 50 percent of votes are considered elected to the joint stock company's Executive Board.
Besides, provisions of Law No. 413 have extended the list of issues adoption of which requires three fourth of votes of the total number of shareholders. For example, a decision of the General Meeting on issues provided for in i.i. 2 - 7 and 21, art. 33 needs to be passed by more than three fourth of the total number of shareholders’ votes.
It is also important to emphasize that the Law stipulates a provision enabling a shareholder to appeal against the General Meeting's decision in court within three months after the decision was passed in the event that the decision itself or the procedure of its adoption infringe requirements of Law No. 514, other legislative acts, the charter or the regulation of the General Meeting of the JSC (art. 50).
Authorities of the Supervisory Board. The JSC Supervisory Board is a body protecting company shareholders’ rights and providing control and regulation over the Executive Board within competencies specified by this Law. The Supervisory Boardmust be formed whenever a JSC has 10 or more shareholders owning ordinary shares.
Members to the Supervisory Board of a public joint stock company may be elected exclusively by cumulative voting, which means multiplying the total number of shareholders’ votes by a number of joint stock company Executive Board members being elected and a shareholder may either support one candidate with all votes calculated in this manner or distribute these votes among several candidates (art. 53).
Supervisory Board members within a private joint stock company are elected according to the principle of proportionality of the shareholders’ proxies in the Supervisory Board in relation to a number of voting shares held by shareholders or by means of cumulative voting. A way a private joint stock company elects members of the Supervisory Board is specified by the company charter.
A quantitative composition of the Supervisory Board is established by the General Meeting. The Supervisory Board in companies with 100 – 1000 shareholders owning ordinary shares should include at least five persons, with over 1000 – at least seven persons and with over 10000 persons – at least nine persons.
6. Operations with shares
As specified by art. 63 of Law No. 521, a person (group of joint persons) who bough 50 and more percent of ordinary shares of the company (hereinafter – “the control stock”), should, within 20 days after the date of control stock purchase, propose all shareholders to buy ordinary shares of the company, exclusive of cases when the control stock was acquired in the course of privatization.
The specified person (a group of persons) should send to the company a public irrevocable proposal (offer) for all shareholders owning ordinary shares to acquire shares at the company’s location to the name of the Supervisory Board and should inform thereof the SCSSM and each stock exchange where the company was listed. The Supervisory Board is obliged to send the specified written offer to each shareholder in the company shareholders’ register within 10 days after it has received relevant documents from the person (group of persons). A period allowed for the shareholders to notify the person who acquired the control stock, about acceptation of the offer, may comprise from 30 to 60 days from the offer receipt date. An acquisition price for shares cannot be lower than the market price as specified by p. 3, art. 8 of this Law.
In addition, if the General Meeting passes positive decisions on some key issues (re-organization, significant legal actions effected by the company, change of the charter capital amount), shareholders who voted against these decisions will have a right to demand that the company buy out shares belonging to them, at the market value (art. 68,69).
7. Measures specified by Law No. 514 to prevent hidden unfriendly acquisitions
Law No. 514 has provided for a range of measures to prevent hidden unfriendly acquisitions, such as:
Issue of shares in a non-documentary form. In compliance with i. 2, art. 20 of Law No. 512, joint stock companies’ shares may exist exclusively in a non-documentary form.
Mandatory notification about acquisition of shares. It is mandatory for a person who intends to acquire a considerable package of shares to notify the JSC in writing about its intention and promulgate it 30 days ahead of the acquisition. The notification becomes promulgated when it is submitted to the SCSSM, each stock exchange where the JSC went through a listing procedure and published with official printed media (art. 64).
Mandatory use of ballots for voting at the General Meeting. A company that has preformed public placement of shares, should conduct voting as to the agenda of the General Meeting only with the use of voting ballots (art. 43). When the company has over 100 shareholders owning ordinary shares, it should conduct voting as to the agenda of the General Meeting only with the use of voting ballots. When voting is conducted on issues specified in art. 68 (mandatory buy-out of JSC shares at the shareholders’ demand), the use of ballots is mandatory.
Venue of the General Meeting. The General Meeting of shareholders should be conducted on the territory of Ukraine, within an inhabited area where the joint stock company is located (changed from the earlier provision saying: “as a rule, where the JSC is located”).
The Law becomes effective within six months after it has been published (that is starting on April 29, 2009), except for the sentence “JSCs’ shares exist exclusively in a non-documentary form”, which will take effect in two years after this Law has been published.
1. Statuary, reserve capital and funds of the joint-stock company
Share capital and capital reserve of the joint stock company. If the net assets value becomes lower than the minimal amount of the share capital as established by this Law, a company should, within 10 months starting from a date when such inconsistence arrives, remove such inconsistence or take a decision on liquidation (earlier this case was governed by part 6, art. 39 of Law No. 1576, which subjected the company to liquidation without specifying a period). From now on, a mandatory condition to increase the share capital of a joint stock company is its compliance after such increase with conditions stipulated by p. 1, art. 14 of Law No. 514 (the minimal amount comprises 1250 minimal wages) as of the date of registering amendments to the company’s charter (i.5, art.15).
Conditions have also changed with regard to capital reserve formation. Thus, in compliance with art. 15 of Law No. 514, a joint stock company is entitled to form capital reserve in amount of at least 15% of the share capital (changed from the earlier required 25%) unless the other is specified by the company’s charter.
The provision for dividends. The charter of a joint stock company may provide for creation of a special provision for paying dividends on preference shares. The State Committee for Securities and Stock Market (the SCSSM) establishes the procedure of formation and application of this reserve.
2. Types of JSCs
Public JSCs and private JSCs: general description
Law No. 514 distinguishes two types of JSCs: private and public joint-stock companies (art. 5).
A public joint stock company may perform public and private placement of shares. A public joint stock company will be obliged to undergo a listing procedure and to remain with a stock register of at least one stock exchange.
A private joint stock company may perform only private placement of shares. A quantitative composition of the joint stock company cannot exceed 100 shareholders. The charter of the private joint stock company may stipulate a preemptive right of its shareholders and the company itself to acquire this company’s shares that are offered for sale by their owner to a third party (i. 2, art. 7).
Consequences of adopting Law No. 514 for open and closed JSCs. Charters and other internal regulations of joint stock companies founded before Law No. 514 came into force, should be brought in conformity with provisions of this Law not later than within two years from the date when Law No. 514 became effective (until April 28, 2011). Besides, in the event that after Law No. 514 took effect (from April 29, 2009), the General Meeting of a JSC that had been founded before this Law became effective took a decision to change the amount of the company’s charter capital, denomination of shares and issue of securities, this company should bring its activity in conformity with this Law and incorporate relevant amendments to its charter and other internal documents (i.6 of the Final and Transition regulations). Failure of a joint stock company to incorporate amendments to its charter and other internal documents forms a basis for refusal of state registration of securities issued by this company.
3. Founding of a JSC: new procedures:
Founders of a joint stock company (hereinafter – “the JSC”) can be represented by one, two or more persons. Founders may conclude a founders’ agreement in a written form. However, in addition, if a JSC foundation involves individuals, their signatures on the founders’ agreement are subject to notary certification.
After the above-mentioned procedure, founders should register issue of shares with the SCSSM, conclude a share issue service agreement with the depository and perform placement of shares with company founders (i. 5, art. 9). The constitutive meeting of the JSC should be conducted within three months after founders have effected a full payment of the charter capital (i. 1, art. 10). The JSC constitutive meeting unanimously agrees on issues of the company foundation, charter and evaluation of property contributed by the founders as payment for company’s shares. Decisions on other issues are taken by a simple voting majority of the founders unless the other is stipulated by a founders’ agreement. This can be followed by registration of charter documents and receipt of a state registration certificate for share issue.
It is worth noting that actions which violate the joint stock company foundation procedure can result in the SCSSM’s decision to refuse registration of a report on the outcomes of closed (private) placement of shares.
The JSC’s constitutive document is its charter. Art. 13 of Law No. 514 contains data to be specified in the charter.
4. Types of shares
A JSC may place shares of two types – ordinary and preference shares.
Ordinary shares of the JSC are not subject to conversion into preference shares or other securities of the joint stock company.
A part of preference shares in the JSC’s charter capital cannot exceed 25%.
Agreements for purchase and sale of shares of a public JSC that has gone through a listing procedure at the stock exchange should be concluded at this stock exchange only. Private JSC’s shares cannot be purchased and/or sold at the stock exchange exclusive of cases when it is done by means of an auction conducted at this stock exchange.
5. Corporate governance
Procedure of calling the General Meeting and its authorities. It is stipulated that the JSC is obliged to annually call a General Meeting (annual General Meeting), which should be conducted not later than on April 30 of the year following the accountable year (art. 32). The agenda of the annual General Meeting must include issues on: approval of the JSC’s annual report; distribution of profit and loss of the company; making decisions based on the results of the report consideration by the Supervisory Board, report of the Executive Board, report of the auditing commission (auditor). In addition, the General Meeting may take decisions on any issues of the JSC’s activity.
A written notification about the General Meeting and its agenda should be sent to the shareholders by an official responsible for calling this meeting in a manner stipulated by the JSC charter not later than 30 days prior to the meeting. The Law also specifies data that should be contained in the notification (art. 35).
In the period between the date of notifying shareholders about the General Meeting and the date when this meeting actually takes place, the JSC must enable the shareholders to get familiar with documents needed for taking decisions on issues included in the agenda. Proposals of shareholders who own in total 5 or more percent of ordinary shares (changed from the earlier more than 10%) should be included into the meeting agenda.
Shareholder(s) who, as of the date of making a list of shareholders entitled to take part in the JSC General Meeting, own in total 10 or more ordinary shares, and the SCSSM may appoint their proxies for supervision of procedures of shareholders’ registration, conducting the General Meeting, voting and summarizing meeting outcomes.
The General Meeting of the JSC has a quorum on condition of registration of shareholders totally holding at least 60 percent of the voting shares (art. 42). The JSC General Meeting should pass decisions on an issue proposed for voting with an ordinary majority of votes belonging to shareholders registered for participation in the General Meeting and owning shares taking part in a relevant vote, exclusive of cases when this Law prescribes otherwise.
Candidates who have collected the largest number of votes among those who collected more than 50 percent of votes are considered elected to the joint stock company's Executive Board.
Besides, provisions of Law No. 413 have extended the list of issues adoption of which requires three fourth of votes of the total number of shareholders. For example, a decision of the General Meeting on issues provided for in i.i. 2 - 7 and 21, art. 33 needs to be passed by more than three fourth of the total number of shareholders’ votes.
It is also important to emphasize that the Law stipulates a provision enabling a shareholder to appeal against the General Meeting's decision in court within three months after the decision was passed in the event that the decision itself or the procedure of its adoption infringe requirements of Law No. 514, other legislative acts, the charter or the regulation of the General Meeting of the JSC (art. 50).
Authorities of the Supervisory Board. The JSC Supervisory Board is a body protecting company shareholders’ rights and providing control and regulation over the Executive Board within competencies specified by this Law. The Supervisory Board must be formed whenever a JSC has 10 or more shareholders owning ordinary shares.
Members to the Supervisory Board of a public joint stock company may be elected exclusively by cumulative voting, which means multiplying the total number of shareholders’ votes by a number of joint stock company Executive Board members being elected and a shareholder may either support one candidate with all votes calculated in this manner or distribute these votes among several candidates (art. 53).
Supervisory Board members within a private joint stock company are elected according to the principle of proportionality of the shareholders’ proxies in the Supervisory Board in relation to a number of voting shares held by shareholders or by means of cumulative voting. A way a private joint stock company elects members of the Supervisory Board is specified by the company charter.
A quantitative composition of the Supervisory Board is established by the General Meeting. The Supervisory Board in companies with 100 – 1000 shareholders owning ordinary shares should include at least five persons, with over 1000 – at least seven persons and with over 10000 persons – at least nine persons.
6. Operations with shares
As specified by art. 63 of Law No. 521, a person (group of joint persons) who bough 50 and more percent of ordinary shares of the company (hereinafter – “the control stock”), should, within 20 days after the date of control stock purchase, propose all shareholders to buy ordinary shares of the company, exclusive of cases when the control stock was acquired in the course of privatization.
The specified person (a group of persons) should send to the company a public irrevocable proposal (offer) for all shareholders owning ordinary shares to acquire shares at the company’s location to the name of the Supervisory Board and should inform thereof the SCSSM and each stock exchange where the company was listed. The Supervisory Board is obliged to send the specified written offer to each shareholder in the company shareholders’ register within 10 days after it has received relevant documents from the person (group of persons). A period allowed for the shareholders to notify the person who acquired the control stock, about acceptation of the offer, may comprise from 30 to 60 days from the offer receipt date. An acquisition price for shares cannot be lower than the market price as specified by p. 3, art. 8 of this Law.
In addition, if the General Meeting passes positive decisions on some key issues (re-organization, significant legal actions effected by the company, change of the charter capital amount), shareholders who voted against these decisions will have a right to demand that the company buy out shares belonging to them, at the market value (art. 68,69).
7. Measures specified by Law No. 514 to prevent hidden unfriendly acquisitions
Law No. 514 has provided for a range of measures to prevent hidden unfriendly acquisitions, such as:
Issue of shares in a non-documentary form. In compliance with i. 2, art. 20 of Law No. 512, joint stock companies’ shares may exist exclusively in a non-documentary form.
Mandatory notification about acquisition of shares. It is mandatory for a person who intends to acquire a considerable package of shares to notify the JSC in writing about its intention and promulgate it 30 days ahead of the acquisition. The notification becomes promulgated when it is submitted to the SCSSM, each stock exchange where the JSC went through a listing procedure and published with official printed media (art. 64).
Mandatory use of ballots for voting at the General Meeting. A company that has preformed public placement of shares, should conduct voting as to the agenda of the General Meeting only with the use of voting ballots (art. 43). When the company has over 100 shareholders owning ordinary shares, it should conduct voting as to the agenda of the General Meeting only with the use of voting ballots. When voting is conducted on issues specified in art. 68 (mandatory buy-out of JSC shares at the shareholders’ demand), the use of ballots is mandatory.
Venue of the General Meeting. The General Meeting of shareholders should be conducted on the territory of Ukraine, within an inhabited area where the joint stock company is located (changed from the earlier provision saying: “as a rule, where the JSC is located”).
The Law becomes effective within six months after it has been published (that is starting on April 29, 2009), except for the sentence “JSCs’ shares exist exclusively in a non-documentary form”, which will take effect in two years after this Law has been published.