New Rules for Inheritance of Equity Interest in Limited Liability Companies

New Law of Ukraine "On Limited and Additional Liability Companies" No. 2275-VIII dated 6 February 2018 (the "Law") was officially published on 17 March 2018. The Law will become effective three months after its official publication, except for the provisions commented below.

One of the key novelties introduced by the Law is the new procedure for inheritance of equity interest (the "Equity Interest") in the authorized capital of a limited liability company (the "Company"), which is substantially different from the existing one.

Under this procedure, no consent of other participants of the Company is required for the inheritor or successor to receive the Equity Interest upon death (recognition by the court as missing or dead) of a participant being a natural person or upon winding up of a participant being a legal person.

Along with that, the Law establishes two regimes for inheriting the Equity Interest depending on its size:

1) If the size of the Equity Interest is less than 50% of the Company's authorized capital, the participant may be withdrawn from the Company, provided that the inheritors (successors) of such participant fail to submit to the state registrar a declaration on joining the Company within a year after expiration of the term for inheritance acceptance. The decision to withdraw the participant is passed without considering the votes of the participant to be so withdrawn.

2) If the size of the Equity Interest is 50% or more of the Company's authorized capital, the Law authorizes the Company to pass decisions on the Company's winding up without considering the votes of such participant.

Thus, it is expected that under the Law, participation eligibility of inheritors (successors) will be defined by the size of the inherited participation interest in the Company.

In contrast to other provisions of the Law, this provision on inheritance of the Equity Interest will become effective one year after the official publication of the Law.

It is also established that the provisions of the Company's charter that are contrary to the Law will be in effect within a year from the effective day of the Law, to the extent that such provisions are in compliance with the legislation as of the effective day of the Law.