UKRAINE Law and Practice Contributed by: Illya Tkachuk, Igor Krasovskiy and Inna Kostrytska, INTEGRITES
In limited liability companies, a pre-emptive right of other shareholders must be observed unless the company’s articles of association provide for no pre-emptive right. A shareholder of the company intending to sell its share (or part of the share) to a third party must notify other share- holders in writing and inform them about the terms and conditions of such sale. The share can be sold to a third party only if other shareholders do not exercise their pre-emptive right. Where there are minority shareholders present in a joint-stock company, the acquirer (or affiliated person) of the controlling stake exceeding 50% of ordinary shares must make a mandatory offer to purchase minority shareholders’ shares at a fair price. 4.3 Liquidity Event: Form of Consideration Cash is the predominant form of consideration in Ukraine. Occasionally, the conversion of debt into equity or stock exchange can be used by parties in the sale transaction. 4.4 Liquidity Event: Certain Transaction Terms In general, founders and venture capital inves- tors are expected to stand behind representa- tions and warranties and certain liabilities after closing. At the same time, there is no well-established court practice for holding the breaching party lia- ble if the representations and warranties appear to be untrue and incorrect under Ukrainian law. Escrow and holdback are used occasionally – although, as with representations and warranties insurance, they are not customary in Ukraine yet. This is not the case for transactions involving Ukrainian technology companies structured
abroad, however, in which case the use of rep- resentations and warranties is rather common (as are indemnification obligations).
5. Spin-Offs 5.1 Trends: Spin-Offs
Although legally possible, the practice of spin- offs is rather undeveloped. On one hand, such practice is down to the absence of a sufficiently sophisticated market. On the other hand, the spin-off procedure is quite complicated and requires dealing with creditors. Moreover, once the spin-off is completed the companies remain co-liable for liabilities that existed before the spin-off. Therefore, considering that the asset structure of technological companies is relatively simple and comprises the IP rights and personnel, if a spin-off is necessary one option may be to simply create a new company and subsequently transfer the required assets/liabilities. 5.2 Tax Consequences The spin-off is a tax-neutral operation at both the corporate and shareholders’ levels. There are no particular requirements that should be adhered for entering the tax-free regime; however, the fol- lowing general issues require attention. First, the spin-off should be “validated” by the tax author- ity, which will inspect the entire operation before its completion. Second, the spin-off provides the creditors with the right to claim for additional guarantees, early performance or even compen- sation of damage. 5.3 Spin-Off Followed by a Business Combination There are no specific restrictions on a business combination following a spin-off. However, any
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