Corporate Governance in Ukraine 2022


Anatoliy Pashynskyi

Counsel, Attorney-at-Law, PhD

Anticorruption Issues,
Corporate and M&A,
Private Client and Wealth Management

Volodymyr Igonin

Partner, Attorney-at-Law

Corporate and M&A,
Telecommunications, Media & Technology

Published: The Legal 500, April 2022

Authors: Volodymyr Igonin, Partner, Anatoliy Pashynskyi, Councel

Please click "+" to expand an answer 

What are the most common types of corporate business entity and what are the main structural differences between them?

Ukrainian law provides for over 20 organizational forms of corporate business entities. The majority of small and medium-sized enterprises in Ukraine are limited liability companies (LLC). As of January 2021, there are approximately 707 000 LLCs in Ukraine. Around 14 000 companies are established in the form of a joint-stock company (JSC). Most of them are private (not listed). Many JSCs are successors of soviet enterprises which have been privatized in 1990-ies. Other types of corporate business entities are either intended for a specific purpose (e.g. farming enterprise, cooperatives) or are outdated.

The inner structure of an LLC includes a general meeting of participants and an individual or collective executive body (CEO or executive board). Recently amended Ukrainian legislation allows to establish a supervisory board in an LLC. Few LLCs have taken advantage of this opportunity so far, but boards become more popular for Ukrainian LLCs.

A JSC, like an LLC, has a general meeting of shareholders and an executive board or individual CEO. Apart from that, any public JSC or a private JSC with more than ten shareholders must establish a supervisory board. Moreover, all public JSCs and private JSCs with over 100 shareholders must have an audit commission. Private JSCs with less than 100 shareholders may appoint a single auditor instead of an audit commission.

What are the current key topical legal issues, developments, trends and challenges in corporate governance in this jurisdiction?

1) New Corporate Governance Code

Ukraine has been actively harmonizing its legislation with EU standards of corporate governance. In March 2020, the National Securities and Stock Market Commission (the “Commission”) presented a new progressive Corporate Governance Code. Although the Code provisions are not obligatory, they reflect best practices of corporate governance in JSCs and serve as general guidelines for conscious Ukrainian businesses. The Code was elaborated in close collaboration with the expert community (including the authors of this guide).

2) Ongoing corporate reform
A groundbreaking reform of corporate governance is currently pending final parliamentary approval. In November 2019, draft law No. 2493 on the new edition of the Law on Joint Stock Companies was presented. Along with the existing two-tier system of corporate governance, the draft law introduces a classic one-tier system and allows most JSCs to opt for a suitable option. The draft law also proposes many important novelties for JSCs such as electronic voting at general meetings, fiduciary duties, and other changes to harmonize Ukrainian legislation with EU Directives 2007/36/EC & 2017/1132 and other best practice.

3) Shareholders’ agreements gaining ground
Until recently, Ukrainian legislation and courts had not recognized shareholders` agreements (SHAs). In 2018, a significant reform in corporate law introduced proper regulation for such agreements for both JSCs and LLCs.

Today more and more Ukrainian shareholders opt for this mechanism to govern their internal relations and increase the company’s sustainability. Besides, first court decisions have recognized the enforceability of SHAs. It proves the viability of SHAs under Ukrainian law in the eyes of local businesses and encourages the further spread of SHAs.

How are responsibility and management power divided between the entity’s management and its economic owners? How are decisions or approvals of the owners made or given (e.g. at a meeting or in writing)

In an LLC, the highest governing body is the general meeting (GM). The GM is comprised of the company’s economic owners – participants – and may decide on any issue in the company. The law lists some matters such as payment of dividends or charter amendment which belong to the exclusive competence of the GM.

The executive body (a collective board or individual CEO) handles day-to-day operations.

A supervisory board in an LLC is optional. If established, the supervisory board controls and regulates the executive body’s activities and may elect its members. In LLCs without a supervisory board, the said functions are executed by economic owners via the GM.

In a JSC, the GM is also the highest governing body with exclusive competence in such issues as charter amendment, payment of dividends, board members’ appointment and other vital matters. Until recent changes in the Law on JSCs, the GM could decide on any company issue. However, since May 2018, the GM cannot override the exclusive competence of the supervisory board. The only exemption from this rule are private JSCs. Their charters may entitle the GM with unlimited powers, including powers to resolve matters belonging to the supervisory board’s competence.

A supervisory board oversees the executive body and ensures adherence to the established strategic guidelines. The supervisory board also has some exclusive statutory competences, including the issue of bonds and the choice of the company`s audit firm. The supervisory board also elects members of the executive body, except in private JSCs where the Charter grants such election rights to the GM. The executive body (management) implements the company strategy on a daily basis.

In both an LLC and a JSC, economic owners’ decisions are adopted at the GM and are materialized in the form of written minutes. Due to COVID-related restrictions, in 2020 remote (online) GMs became in high demand. The Commission updated its procedural acts for GMs for the quarantine period and elaborated universal amendments to the JSC legislation pending final voting by the Parliament.

In a company with one participant (shareholder) such a sole owner issues written decisions instead of GM minutes.

Who are the key persons involved in the management of each type of entity?

The key persons involved in managing an LLC are the participants via the participants’ general meeting (GM) and the management (a collective board or individual CEO). If an LLC has a supervisory board, members of the supervisory board are also involved in decision-making processes.

The list of key decision-makers in a JSC is similar. Shareholders are involved in governance via the general meeting of shareholders (GM), while a collective management body or individual CEO manages day-to-day activities. Members of the supervisory board and audit committee are also responsible for some areas of the company’s activity.

Compliance officers become very important, especially for regulated companies (e.g. banks).

What are the principal sources of corporate governance requirements and practices? Are entities required to comply with a specific code of corporate governance?

The principal sources of corporate governance requirements for LLCs and JSCs are the Civil Code of Ukraine, the Commercial Code of Ukraine, the Law on Limited and Additional Liability Companies, the Law on Joint Stock Companies, the Law on Securities and Stock Market. Also, there is specific legislation for state-owned enterprises and banks.

As a soft law source, the Commission urges Ukrainian companies to use the new Corporate Governance Code for general guidelines on sustainable business development.

How is the board or other governing body constituted?

Ukrainian corporate governance has a two-tier system: an executive board/CEO (management) and a supervisory board (oversight). For information on the allocation of powers between governing bodies see question 4 above.

Ukrainian LLCs have one CEO or sometimes a collective executive board. Supervisory boards in an LLC are not obligatory and therefore rare. JSCs are governed by the executive board (or CEO) and the supervisory board.

Although both public and private JSCs may establish an individual executive body (CEO), only small or affiliated private JSCs employ this option. Large companies usually have a collective executive board.

Executive and supervisory boards in any entity should be constituted only by natural persons. The company Charter stipulates the number of members on both boards.

How are the members of the board appointed and removed? What influence do the entity’s owners have over this?

In LLCs, the GM elects and removes members of the executive board (or CEO) and of the supervisory board. The GM may delegate the right to elect members of the executive board (management) to the supervisory board, if the latter exists in the company. Such practice is not common, as most owners wish to retain direct influence on the appointment of management. Still, sole owners concerned with succession are ready to delegate appointment of management to the supervisory board.

In JSCs, the GM appoints members of the supervisory board and removes them. In turn, the supervisory board elects and dismisses executive board members without the owners’ direct participation, at least formal. However, in private non-state-owned JSCs, the GM may still appoint the executive board if the Charter so permits.

In practice, equity rights in the vast majority of Ukrainian companies are concentrated and belong to one or several owners. A rare company has more than five shareholders; around half has a sole one. Thus, in most cases, the entity’s owner(s) influence management appointment to a greater or lesser extent. Furthermore, there are many companies, especially SMEs, where the owner is the CEO of the company.

There are specific nomination procedures for state-owned companies on the appointment of supervisory board members and management.

Who typically serves on the board? Are there requirements that govern board composition or impose qualifications for board members regarding independence, diversity, tenure or succession?

There are no specific legal requirements for executive/supervisory board members in an LLC and for executive board members in a JSC as long as they do not belong to some regulated groups (e.g. banks, state-owned enterprises) or have major state or municipal shareholding. However, there are legal requirements for supervisory board members in JSCs which we outline below.

There are two types of members of a JSC supervisory board: independent board members and the ones representing shareholder(s). The latter may be substituted by their principal shareholder(s) at any time.

An independent board member must be detached from any shareholder influence and act impartially in the best interests of the entire company, not of a particular shareholder(s). The law sets rigid requirements for independent board members. For instance, a person is not independent if he/she was a member of any governing body in the company during the last five years, worked in the company or its affiliates for the previous three years, owns 5% or more shares in the company etc. If a person sits as a board member for 12 years, (s)he may not be reelected as an independent board member.

There are no statutory requirements on diversity in the supervisory board so far. Nevertheless, legislative initiatives to implement a 40% minimum for any gender in supervisory boards are widely discussed.

A board of a public JSC should consist of at least five board members. Moreover, a public JSC should have no less than 1/3 (or at least 2) of independent members on its board. Private JSCs are not obliged to elect independent board members but are encouraged to do so by the Commission’s Corporate Governance Code.

What is the role of the board with respect to setting and changing strategy?

In Ukrainian LLCs, the owners define the company’s strategy without formal adoption (in most cases) or, if adopted – by the GM decision. The Charter may assign such powers to the supervisory board. However, this is rarely the case, because few LLCs have supervisory boards.

In JSCs, the GM usually establishes the main strategic goals (or ownership policy for stated-owned JSCs). Approval of strategy is often delegated to the supervisory board. The management may take part in elaborating the strategy or suggest amendments to it.

How are members of the board compensated? Is their remuneration regulated in any way?

There are no legal provisions on the compensation of board members in an LLC. In small and medium LLCs, the management usually receives standard fixed salaries with possible financial bonuses at the end of the year.

JSCs should adhere to the following requirements on the compensation of board members set by Commission regulations:

1) For members of the supervisory board

The GM adopts regulations regarding compensation of board members in compliance with the Commission’s rules. In public JSCs, the GM should annually review such regulations and approve reports on board members’ remuneration.

According to Commission’s rules, the compensation of board members may have fixed and variable parts. The latter usually depend on the company’s profitability and KPIs of a particular board member. The remuneration of a board member is set out in his/her employment contract subject to the approval of the GM.

2) For members of the executive board

A supervisory board adopts regulations on remuneration for executive board members using the Commission’s guidelines. The supervisory board also approves the terms of employment contracts with every member of the executive board.

Executives in big JSCs usually have fixed and variable parts in their remuneration. Variable bonuses depend on the financial results of the company. Although such bonuses are generally paid in money, the Commission recently allowed their payment in share options.

Do members of the board owe any fiduciary or special duties and, if so, to whom? What are the potential consequences of breaching any such duties?

Under the law, all JSC officials (i.e. members of the supervisory board, executive board and audit commission) must act in the company’s best interest. Similarly, directors and executives in an LLC must act reasonably and in good faith in the interests of the company.

Board members as well as other JSC and LLC officials are personally liable to the company for damages caused by their action or failure to act. Also, JSC shareholders and supervisory board members representing them are jointly liable for damages caused to the company by such board member(s).

Employment contracts may set additional liability for directors and top executives.

Are indemnities and/or insurance permitted to cover board members’ potential personal liability? If permitted, are such protections typical or rare?

Some insurance companies offer programs for professional liability insurance – D&O (Directors and Officers Liability Insurance). However, such insurance is not standard in Ukraine so far.

Ukrainian law does not recognize indemnities.

How (and by whom) are board members typically overseen and evaluated?

In an LLC, members of the executive board report directly to the GM, unless the Charter provides for a supervisory board with respective powers. The supervisory board itself (if established) is overseen by the GM.

In a JSC, the executive board is overseen and evaluated by the supervisory board, except in private JSCs where the GM may retain such powers. Members of the supervisory board report to the GM. Public JSCs must also establish a supervisory board committee on remunerations entitled to advise on remuneration matters of the supervisory and executive boards.

Executive board members are primarily evaluated based on the company’s profitability. Some big companies use more sophisticated KPIs like customer retention, project completion rates or marketing efforts in addition to financial results. All public JSCs must approve and annually review the regulation on compensation of management with their financial and non-financial KPIs.

Is the board required to engage actively with the entity’s economic owners? If so, how does it do this and report on its actions?

In Ukraine, the influence of economic owners is traditionally strong regardless of the type of business entity. Therefore, both the supervisory and executive boards engage actively with the company’s owners. Such engagement may occur formally (through periodical reports, participation in the GM etc.) and informally (via e-mails, telephone calls or informal meetings).

For more information on formal reporting see question 13 above.

Are dual-class and multi-class capital structures permitted? If so, how common are they?

Both public and private JSCs may have a single-class or dual-class share capital structure. The company’s Charter determines the share capital structure.

In case of a single-class structure, the company’s share capital consists only of common shares. Every common share grants its owner one vote on any issue at the GM and a proportional portion of dividends.

If a JSC has a dual-class structure, its share capital consists of common and preference shares. Although preference shares have limited voting power, such shares entitle its owner to a certain guaranteed sum of annual dividends which the company must pay irrespective of its financial results.

The law also allows to further subdivide preference shares into several classes with different rights. The number of preference shares may not exceed 25% of all the company’s shares. Generally, preference shares are not very popular in Ukraine, and most companies have single-class capital structures.

What financial and non-financial information must an entity disclose to the public? How does it do this?

The strictest standards on corporate disclosure apply to public (listed) JSCs. Public JSCs must disclose their constituent documents, GM agendas and minutes, audit commission and independent auditors’ reports, annual financial statements and reports of the supervisory and executive boards. Moreover, public JSCs also disclose the date and agenda of upcoming GMs. The company annually submits the above documents and some other information (shareholders with more than 5% of shares, material transactions, information on the existence of a SHA etc.) to the Commission or authorized agents for further disclosure. Besides, public JSCs disclose certain additional information to the stock exchange where they are listed.

Since 2018, private JSCs must publish the date and agenda of upcoming GMs on their websites. Private JSCs submit financial statements, information on majority shareholders, GM minutes and certain other documents to the Commission for further disclosure.

LLCs have no obligation to make any public disclosures.

Both LLCs and JSCs must retain financial statements and other documents on the company’s activities and provide them to participants or state authorities upon their lawful demand.

Can an entity’s economic owners propose matters for a vote or call a special meeting? If so, what is the procedure?

Regardless of its shareholding in an LLC or JSC, every owner may submit proposals to the GM beforehand. Proposals of owner(s) with more than 5% (in JSCs) or 10% (in LLCs) of shares are mandatorily included on the agenda. Proposals of minoritarians with fewer votes may be turned down by the body convening the GM on grounds stipulated in the Charter (if any).

In both LLCs and JSCs, shareholder(s) with 10% or more shares may demand to call an extraordinary GM.

What rights do investors have to take enforcement action against an entity and/or the members of its board?

Investors that own shares in the company may demand reports from executives or even remove them from office (if they have enough votes on the GM). Shareholders may claim the company officials for compensation of damages occurred by their wrongful actions in court via derivative claims.

Investors that do not own shares in the business may file official complaints or court claims against the company. These claims usually refer to certain unfulfilled contractual obligations, for example outstanding debts under loan agreements.

Besides, recent amendments to legislation allowed creditors to become a party to SHAs (at least in JSCs). It granted creditors an additional legal instrument to oversee the disbursement of their investments and act against faulty management.

Is shareholder activism common? If so, what are the recent trends? How can shareholders exert influence on a corporate entity’s management?

Majority shareholders in Ukrainian companies often play an active role in the company’s day-to-day management. They frequently interact with company officials, maintain contact with key clients and occasionally instruct board members on necessary decisions.

In contrast, shareholder activism among minority shareholders is hardly a part of Ukraine’s corporate culture. Although minority shareholders enjoy certain statutory rights (access to information, right to propose issues on the GM agenda etc.), they rarely get actively involved in the company’s affairs. On the other hand, professional portfolio shareholders frequently use their minor stakes to challenge economic-related decisions of the company.

Shareholders may exert influence on management both through formal and informal means. Formal influence is usually performed through binding GM decisions, individual information requests or official complaints to the Commission, while informal means include telephone calls, e-mails and off-the-record meetings with top executives.

Are shareholder meetings required to be held annually, or at any other specified time? What information needs to be presented at a shareholder meeting?

In LLCs, an annual GM should be held no later than 30 June following the respective financial year. The annual meeting agenda must include questions on the distribution of net profit, payment of dividends and their amount.

JSCs must hold an annual GM no later than 30 April following the respective financial year. The agenda of such annual meeting should cover payment of dividends, approval of the company’s annual financial report, reports of the supervisory board, executive board and the audit commission. Public JSCs also have to approve reports on the compensation of supervisory board members and assess the necessity of amending regulations on remuneration of board members.

All other shareholder meetings in LLCs and JSCs are considered extraordinary and may be called at any time and for any reason.

Are there any organisations that provide voting recommendations, or otherwise advise or influence investors on whether and how to vote (whether generally in the market or with respect to a particular entity)?

Engagement of independent shareholder advisors or consultant firms is not typical in Ukraine due to an early-developed stock market. Hence, there are few organizations which provide such services in Ukraine. Shareholders usually rely on their personal or collective judgment as well as advice from their attorneys and auditors.

What role do other stakeholders, including debt-holders, employees and other workers, suppliers, customers, regulators, the government and communities typically play in the corporate governance of a corporate entity?

Major debt holders such as banks usually have a strong influence on the company’s corporate governance. Loan or credit line agreements often contain provisions regarding the bank’s consent on certain management decisions and broad information rights. Some contracts stipulate a change of control in a debtor as basis for early repayment of the loan. Since 2018, creditors may enter into SHAs with JSC shareholders obliging the latter to vote in a certain way at the GM, perform other actions in the company or even sell their shares at a fixed price in certain circumstances.

Employees, especially top-level management, may have an impact on key decision-makers in the company. Ordinary employees hardly participate in corporate governance, except for rare businesses with independent and powerful labour unions.

Customers and suppliers usually have no direct impact on the company’s corporate governance. Meanwhile, key clients and strategic suppliers determine the company’s business model, which may indirectly affect its corporate governance approach.

Governmental and municipal agencies are not involved in the corporate governance of private companies and may only exercise overall control in cases stipulated by law. Unlawful interference in the private business activity is directly forbidden for state authorities.

How are the interests of non-shareholder stakeholders factored into the decisions of the governing body of a corporate entity?

Influential stakeholders such as banks may suggest their proposals to indebted companies. The governing bodies take such proposals into account if the company wishes to maintain its credit line or other bank engagements.

At the institutional level, employees may factor their interests through labour unions, which however are not widespread in Ukraine.

Customers and suppliers influence the decisions of governing bodies indirectly through market laws of supply and demand. When the company’s profitability depends on certain supply partners or group of customers, their interests are usually considered by governing bodies.

What consideration is typically given to ESG issues by corporate entities? What are the key legal obligations with respect to ESG matters?

In recent years, attention to ESG is continually growing among Ukrainian companies. On top of standard legal requirements, companies often follow best practices such as “green office” in the environmental sphere, charitable projects in the social sphere, transparency and ISO-compliance in governance. More and more businesses include information on corporate social responsibility projects in their yearly reports and publish it on their official websites.

There are numerous legal regulations on ESG issues in Ukraine. The new Corporate Governance Code encourages all companies to ensure compliance with sustainable development goals and develop internal ESG policies. Fundamental obligations in environmental issues include adherence to pollution & waste-recycling standards and environmental risk assessment for industries. Also, in August 2020 the Parliament introduced a new way to invest in ESG projects – the so-called “green bonds”. This new type of bonds aims to raise money for financing environmental projects. Most of the social sphere regulations are related to workers’ guarantees such as salary, vacation, sick leave etc. Concerning governance, there are lots of disclosure, transparency and audit requirements for public JSCs.

The COVID-19 pandemic increased investors’ awareness of ESG issues. An approved sustainable development policy in the company mitigates a significant number of risks. Companies are also becoming more socially responsible in the aftermath of the COVID-19 outburst. In 2020, many businesses purchased protective gear and medical equipment for hospitals, helped their local communities and tried to avoid mass staff layoffs.

What stewardship, disclosure and other responsibilities do investors have with regard to the corporate governance of an entity in which they are invested or their level of investment or interest in the entity?

Investors who own shares in an LLC are obliged to adhere to the company’s Charter and comply with GM decisions. In addition to those obligations, JSC shareholders must comply with their financial obligations towards the company and not disclose commercial secrets or confidential information regarding the company’s activity. The company’s Charter or a SHA with such investors may set out additional obligations.

As of now, individual investors in Ukraine personally have no disclosure obligations regarding their level of investment or interest in the entity. There are certain exceptions to this rule, e.g. for public servants. Also, CFC rules provided for by the BEPS action plan are scheduled to enter into force in Ukraine in 2021. Companies who own shares or invest in other companies indicate such information in their financial statements.

Regarding stewardship, the participation in corporate governance is considered a right rather than an obligation of the shareholder.

What are the current perspectives in this jurisdiction regarding short-term investment objectives in contrast with the promotion of sustainable longer-term value creation?

In general, Ukrainian investors in SMEs tend to set and follow short-term gains. Meanwhile, many big Ukrainian businesses pay more attention to corporate social responsibility issues, sustainable development and long-term goals. The new Corporate Governance Code encourages companies to ensure compliance with sustainable development goals and develop internal ESG policies.

What's new?

Most important updates in your mail.

similar publications


Since 1991, the Ukrainian economy has remarkably transformed from its Soviet model to a modern and free market one. Still, thousands of enterprises remain in state and municipal ownership. The Government is interested in handing over publicly owned assets to effective private owners for future investment and development.

Anatoliy Pashynskyi , Volodymyr Igonin


There is hardly any Ukrainian left who has not even tried for the last three months to raise or remit money to meet needs of our military. It is often the case that a Privatbank card number, which is given in the first comment to the social media post, is used to raise funds. However, volunteers are facing the risk of having huge amounts of tax charged if they accept money to their personal bank cards...

Anatoliy Pashynskyi