Incorporation and Licensing Issues Arising for Non-Resident Stock Brokers in Ukraine
By Tatiana Zamorska
Zamorska & Partners
The Ukrainian commercial
law system consists of a
variety of laws and regulations,
which foreign investors often
find difficult to deal with. The
main concerns include the complexity
and controversial nature of
Ukrainian legislation regulating
commercial aspects of business.
The majority of such concerns arise at the very outset of commercial
activities in Ukraine, i.e. at the stage of incorporation and
application for a respective license.
In particular, amongst other issues which illustrate very well
the problems arising due to misinterpretation of certain Ukrainian
legal acts, is an issue recently encountered by foreign stock
brokers during licensing of their subsidiaries in Ukraine.
Establishment of Subsidiaries in Ukraine
Prior to the commencement of the process of establishment
of a subsidiary by a foreign stock broker, the following main aspects
should be clarified and decided upon by the management of
the founder or parent company, i.e.:
• main requirements of Ukrainian law regarding incorporation
and licensing of foreign stock brokers’ subsidiaries in Ukraine;
• choice of form of Ukrainian legal entity (subsidiary of a foreign
stock broker) to be incorporated;
• decision on shareholding structure of a Ukrainian legal entity
(subsidiary of a foreign stock broker);
• statutory requirements as to the charter capital of a Ukrainian
legal entity (subsidiary of foreign stock broker) and the agreed
amount to be formed at incorporation.
The list of Ukrainian legal acts to be considered in the process
of incorporation and licensing of legal entities in Ukraine is rather
broad and, therefore, good navigation in the mentioned list of legal
acts is of critical importance. In particular, the following main pieces
of general legislation would be relevant for the purpose of incorporation
and licensing of foreign stock brokers’ subsidiaries in Ukraine:
• Commercial Code of Ukraine;
• Civil Code of Ukraine;
• On Companies Act of Ukraine;
• On State Registration of Legal Entities and Individuals – Entrepreneurs
Act of Ukraine.
In addition, the founder(s) should also take into account special
requirements applicable to Ukrainian subsidiaries of foreign
stock brokers, i.e:
• Regulations of the State Commission for Securities and
Stock Market of Ukraine1 On Approval of Order and Terms of
Issuance of Licenses for Performing Certain Types of Professional
Activity on the Stock Market, Re-issuance of Licenses, Issuance of
Duplicate Copies and Copies of Licenses of 26 May 2006, No. 345,
registered with the Ministry of Justice of Ukraine on 28 July 2006,
No.890/12764 (hereinafter — Order), and
• Regulations of the State Commission for Securities and
Stock Market of Ukraine On Approval of Licensing Terms for Performing
Professional Activity on the Stock Market – Activities on
Securities Trading of 26 May 2006, No.346, registered with the
Ministry of Justice of Ukraine on 4 August 2006, No.938/12812
(hereinafter — Licensing Provisions).
Legal entities may be established in Ukraine in one of the following
legal forms:
• Joint stock company,
• Limited liability company,
• Additional liability company,
• Full liability company,
• Commandite company.
From the practical perspective, the most common forms of
legal entities in Ukraine include:
• a joint stock company and
• a limited liability company.
• Joint stock companies are legal entities in which charter
capital is divided into shares of equal par value.
• Shareholders of a joint stock company are liable to a JSC’s
obligations only to the extent of their respective equity contributions
made to the JSC’s charter capital.
• There are two types of joint stock companies in Ukraine:
open joint stock companies and closed joint stock companies.
• An open joint stock company distributes its shares to an
unlimited number of investors (and, therefore, such a company’s
shares can be traded on the stock exchange), whereas a closed
joint stock company distributes its shares to a limited number of
investors.
• The procedure of registration of a joint stock company may
take up to 6 months.
• Shareholders of a limited liability company are liable for
an LLC’s obligations only to the extent of their respective capital
contributions to the LLC’s charter capital.
• No restrictions are envisaged regarding how the shares of an
LLC shall be distributed between shareholders.
• The procedure of registration of a limited liability company
can take up to 1 month.
Choice of Shareholding Structure for a Ukrainian
Subsidiary of Foreign Stock Broker
While choosing the shareholders’ structure, a foreign investor
shall take into account that, despite the general rule providing for
the absence of any restrictions or limitations as to shareholders,
the following specific rules shall apply:
1. if a parent company of the Ukrainian subsidiary was founded
by one shareholder, such a parent company cannot be the sole
shareholder in a Ukrainian subsidiary;
2. a license to conduct any type of professional activity on the
stock market – stock trading activity - shall not be issued to a stock
trader (including a bank), in which another stock trader owns a
stake of 10% or more;
3. a license to conduct any type of professional activity in the
stock market – stock trade activity - shall not be issued to a stock
trader (including a bank), which owns a stake in another stock
trader of 10% or more.
Whereas the first rule is absolutely clear, other rules shall be
explained, because the view of the State Commission for Securities
and Stock Market of Ukraine with regard to the definition
of the term “stock broker”, which may also include foreign stock
traders, is unclear. Furthermore, there are no official clarifications
available on this issue from public sources.
In spite of this absence of official documents explaining the
official view, there are a number of stock traders – subsidiaries of
famous foreign stock brokers in Ukraine. And, based on practice,
such parent companies – foreign stock traders have obtained relevant
clarification letters prior to applying for a license in each case.
Taking into account the above, it can be argued that foreign
stock traders shall not be considered as stock traders, because they
have not obtained a respective license from the State Commission
for Securities and Stock Market of Ukraine. Therefore, in such case,
we can advise foreign stock traders to obtain relevant written clarifications
from the State Commission for Securities and Stock Market
of Ukraine prior to applying for a license to ensure that the application
will not then be refused on the grounds discussed above.
Formation of Charter Capital of a Ukrainian
Subsidiary of Foreign Stock Broker
The minimum capital requirements for a Ukrainian subsidiary
of foreign stock broker are as follows:
1) total nominal value of issued shares, constituting of the
share capital of a joint stock company, shall be equal to at least
1250 minimum salaries, based on the minimum salary amount effective
at the time of incorporation of a Ukrainian subsidiary (joint
stock company);
2) the share capital in a limited liability company shall be equal
to at least 100 minimum salaries, based on the amount of the minimum
salary effective at the time of incorporation of a Ukrainian
subsidiary (limited liability company).
A foreign investor shall also take into account the following
specific requirements as to formation of the charter capital, which
shall be applicable to the subsidiaries that are engaged in activity
on the Ukrainian stock market:
(a) license to conduct professional activity on the stock market
– stock trading activity (dealer activity) shall be issued only to
a stock trader (excluding banks), whose charter capital has been
paid in cash in the amount equal to at least UAH 120,000.
(b) license to conduct professional activity on the stock market
– stock trading activity (broker’s activity) shall be issued only
to a stock trader (excluding banks), whose charter capital has been
paid in cash in the amount equal to at least UAH 300,000.
(c) license to conduct professional activity on the stock market
– stock trading activity (underwriter’s activity) shall be issued
only to a stock trader (excluding banks), whose charter capital has
been paid in cash in the amount equal to at least UAH 600,000.
We would advise non-resident stock brokers considering incorporating
their subsidiaries in Ukraine to seek assistance from professional
legal advisers regarding all the issues related to incorporation
and licensing of their Ukrainian subsidiaries, including further ongoing
legal support after the respective license has been issued.
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