Reduced quorum of an LLC’s general meeting may confuse the coordinate system of doing business in Ukraine

Reduced quorum of an LLC’s general meeting may confuse the coordinate system of doing business in Ukraine

Nikolas LIKHACHOV, Counsel, Head of Corporate and M&A practice

The “absolutely brief” (as described by the Verkhovna Rada’s Speaker) Law on the reduction of the quorum of an LLC’s general participants meeting was 4 times put to the signal vote on 24 November through the lack of attention from the members of parliament, whereupon it was adopted in general.

Should the President sign this law, such casual attitude on the part of the legislators may confuse the coordinate system of doing business in Ukraine.

The law amends Article 60 of the Law of Ukraine “On Business Companies” in terms of the reduction of the quorum of the general participants meeting of a limited liability company from 60% to 50%. In other words, the company founder holding 50% plus 1 vote would be able to independently convene and conduct meetings, as well as resolve most of the issues of the business activities at its sole discretion. Accordingly, the holder of 49% of votes would not be able to influence the meeting by its non-attendance at a meeting and block the decision-making.

Nevertheless, the intent of the authors of the legislative initiative to solve in such a manner the problems of protecting the interests of company participants, as well as the plans to approximate Ukrainian legislation to international standards (which is expected to positively influence the investment climate in Ukraine) cause some bewilderment. Indeed, in most developed countries with the Anglo-Saxon and Romano-Germanic law systems, quorum at a general meeting requires presence of the participants commonly holding at least 60% of the total votes.

The legislator has also foreseen that business companies with no government stake may also provide for any other number of votes for the general meeting to be competent.

At the same time, it is unclear to which side (lower or higher) business entities are allowed to alter the fifty percent benchmark established by law and to which extent.

Therefore, it is still not clear how the law will work in practice. In any case, if any changes are made to their constituent documents or any new structures are formed, companies should carefully determine the number of votes for quorum. In fact, changing the customary 60% may seriously affect the corporate governance and future of the company.