The Constitutional Court of Ukraine clarified the provision of the law “On Business Associations” determining the number of votes of the LLC (limited liability companies) members for quorum and voting

14.02.2013

The Constitutional Court of Ukraine (CCU) held that the provision of part one of article 58 of the Ukrainian Law “On Business Associations” (the Law) should be understood as following: while determining authority of the general meeting of the LLC members and results of decision making polls, the number of votes taken into account  should be determined proportionally to the number of their shares in the authorized capital established by the company’s charter, with no regard to their actually made (paid) contributions – only during the first year after the state registration of the LLC.

The CCU’s decision indicates that the subject matter of legislative regulation is: the number of votes determining authority of the general meeting of the LLC members and results of decision making polls in case if during the first year after the state registration of LLC a member failed to comply with his commitment to form the authorized capital and the general meeting of the LLC members didn’t make its decisions specified in  part three of article 144 of the Ukrainian Business Code and part three of article 52 of the Law.

Such clarification was revealed by the CCU on February 13th, 2013, within the framework of the resolution #1-đď/2013 (February, 5th, 2013) in the case on constitutional complaint of “Lichtner Beton Lviv” LLC regarding official clarification of the provisions of part 4 of article 58 and part 1 of article 64 of the Law “On Business Associations”.

At the same time, the CCU didn’t really explain the procedure of member’s elimination from the company if he/she failed to comply with his commitments or did it improperly, by the decision which was voted by members who in aggregate own over 50% of total votes. The complainant was interested, if the court has authority to decide on elimination of such member. The CCU considered that the author ofthe constitutional complaint failed to specify the subject matter of clarification and that “the failure to define the subject matter of clarification makes official interpretation impossible”.

Helen Yaremchuk, senior partner, head of corporate law practice at Konnov & Sozanovsky:
-  The CCU, while saying “a”, didn’t say “b”. Having determined that during the first year of work of an LLC the number of votes should be counted proportionally to the shares of the members defined in the Charter, the CCU didn’t go beyond and couldn’t decide that starting from the second year the votes are being counted according to the contributions to the authorized capital made by the members. I think that the CCU’s decision on clarification of part four of article 58 of the Ukrainian Law “On Business Associations” isn’t justified by the said provisions of the CCU’s decision, and provisions of the said article and its part are subject to the legislative regulation as well as the issue about the number of votes determining authority of the general meeting in case of member’s failure to comply with his commitment to form the authorized capital of the LLC during the first year. At the same time, I totally agree with the Separate Thought of the CCU’s judge Lylak D. D. to the said Decision of the CCU about official clarification of the provisions of part one of article 64 of the Ukrainian Law “On Business Associations”, and I support his opinion that legal relationship regarding member’s elimination from the company has to be under the courts’ jurisdiction. Considering the norms mentioned by the judge, in case if the general meeting can’t eliminate a member court has a right to make such  decision. At the same time, the CCU by not clarifying part one of article 64 of the Ukrainian Law “On Business Associations” has left members with a contradictory practice. Nowadays, in practice one court will make a decision and the other one will deny it.

In order to read the CCU’s clarifications, please follow the link http://www.ccu.gov.ua/uk/doccatalog/list?currDir=195217