Pysarenko Oleksandr, Attorney-at-Law, MBA Degree.
Pysarenko Law Office, Kiev, Ukraine.

The vast majority of LLC’s in Ukraine are being incorporated by two-three shareholders. In case shareholder’s death, if his share was no less than 40% of the share capital, other shareholders are faced with the following choice. Either they accept deceased shareholder’s successors into company, or they are most likely forced into procedure of company’s charter re-registration.

In the second scenario, where remaining shareholders do not have 60% of the combined share capital and where they refuse to accept successors into the company, choosing to reimburse their shares, remaining shareholders have to address state registration office in order to amend statutory documents. This procedure is being quite often unlawfully intermitted by state registrars.

Registrars tend to refer to Art. 60 of the Law on “Business Associations”, according to which, the assembly of participants is considered to be competent, if the participants (representatives of participants) who own in total over 60% of votes are present. As deceased person who owned 40% or more of the shares was obviously not taking part in the assembly meeting that decided to reimburse deceased person’s successors instead of accepting them into the company, state registrars leave applicants documents without consideration.

Following are three key points that prove such actions of the state registration office as unlawful:

1) Assembly of participants can consist only of living persons or their representatives. Participant’s roster is contained within the statutory documents. Their combined votes are treated as 100% of votes. Deceased participant of LLC loses his civil capacity at the moment of death, and therefore ceases to be a member of LLC and ceases the ability to participate in the management of given company (including management through representation). Therefore, such person objectively can’t partake in management of LLC or have a vote in the assembly. It means that assembly of participants now consists of remaining shareholders and their combined votes now represent 100% (Art. 4, 58, 60 Law on “Business Associations”, Art. 24, 25, 30, 114, 116, 248 of Ukrainian Civil Code).

2) Art. 55 of the Law on “Business Associations” provides that successors have priority right to join the association in case of reorganization of legal entity. In case of decline of the successor to join the limited partnership or on decline of the association to accept the successor the latter is given the share in assets in the form of money or property that belonged to the company.
This article infers that decision on whether or not successors will join the company lies on the remaining members of association. This means that votes neither of deceased person, nor his successors can affect such decision and therefore, should not be counted towards the total 100% of the votes.

3) Previous point is also supported by the P.4 Art. 29 of the Law “On State Registration of Legal Entities and Individuals – Entrepreneurs”. It states that in case of amendment of statutory documents, which result from death of one of the shareholders (participants of LLC) and refusal of remaining participants to accept successors into company, apart from the documents listed in first paragraph of this article, a notarized certificate of death of deceased participant of LLC should be presented to state registration office.
This rule of law also points at remaining participants of LLC as the only entity responsible for the decision making process behind accepting or refusing of successors joining into the circle of company’s participants.

As a conclusion, we can derive that according to general rules of the Civil Code and special rules of the respective laws, in the case of death of one of the LLC participants with 40% or more in shares, assembly of participants is plenipotentiary if remaining participants with a combined share of less than 60% are present during voting.

Pysarenko Law Office. Kiev, Ukraine.

Tel.: +38 (044) 270 60 46