Legal Perspectives on the Draft Law Regarding Additional Capital in Ukrainian Limited Liability Companies

By Taras Dumych, managing partner of Wolf Theiss Kyiv

On 4 June 2025, the Verkhovna Rada of Ukraine – the Parliament of Ukraine adopted as a basis in the first reading the Draft Law 13002 on amendments to Article 12 of the Law of Ukraine “On Limited Liability Companies and Additional Liability Companies” (LLC Law).

This draft law is aimed at ensuring the possibility of creating additional capital in Ukrainian limited liability companies (LLCs) and additional liability companies (the latter are much less common in corporate practice than LLCs) and the possibility of making contributions to additional capital by LLC shareholders.

Traditionally, relations between LLC shareholders, as well as shareholders’ investments in LLCs are related to the charter capital and contributions to the charter capital of the LLC. As a result of their contributions, shareholders receive shares in the LLC’s charter capital. It should be noted, however, that the charter capital itself is actually a rather arbitrary value. For example, the LLC Law does not set a minimum amount of the charter capital of an LLC at all. In addition, in practice, the value of the LLC’s assets, such as the value of intellectual property rights or other assets and rights created by the LLC that are not part of the charter capital, may often differ significantly from the formal amount of the charter capital.

What should the founders and investors in an LLC do in cases where the value of the LLC’s assets is significantly higher than the formal registered amount of the charter capital? It is not seldom that outside investors are willing to make substantial investments in the LLC, often even larger than the charter capital itself which was provided by the founders. How can the founders of an LLC protect themselves from dilution and ensure that investors receive the exact amount of shares they agreed with the founders?

A striking example of such investments is investments in successful technology companies such as Apple, Facebook, Zoom and many other similar companies that have attracted venture capital investments. After all, investors who invested in these companies often invested funds that were significantly higher than the companies’ registered capital or even the existing value of the companies’ assets at the time. At the same time, such investors often, if not always, received minority shareholding stakes in the companies they invest in.

Although the LLC Law mentions the possibility of disproportionality of the size of shares to the shareholders’ contributions, in practice it has proved difficult to apply these statutory provisions. This difficulty is partly caused by the fact that the state register of legal entities (companies register) no longer provides for the possibility of specifying the size of shares in percentage terms (which is rather strange), but only monetary amounts of capital contributions and the size of the charter capital.

This has led to practical complications and misunderstandings in relations with state registrars, government agencies and financial institutions. After all, even if the LLC charter provides for a percentage share size that is disproportionate to the shareholder’s contribution, and even if all shareholders vote for it, the state register does not have the functionality to reflect this state of affairs. In fact, there is a conflict between the provisions of the LLC Law (which themselves leave some room for different interpretations) and how these provisions can be implemented in practice.

Prior to the adoption of the LLC Law, the Law on Business Associations contained a provision that allowed LLC shareholders to regulate their relations with respect to the size of their shares. At that time, Article 51 of the Law “On Business Associations” provided:

“Changes in the value of the property contributed as a contribution and additional contributions by participants do not affect the amount of their share in the charter capital specified in the company’s constituent documents, unless otherwise provided by the constituent documents.”

However, after the LLC Law came into force, the Law on Business Associations effectively lost its force in relation to LLCs, and a gap arose. Thus, the Draft Law 13002 aims to address this gap.

Interestingly, the concept of additional capital is not a stranger to Ukrainian law. For example, according to Article 16(5) of the Law of Ukraine “On Joint Stock Companies”, “Shareholders of a company may make additional contributions to the additional capital and special funds of the company without changing the number of shares they own and their nominal value.” Additional capital is also regulated at the level of accounting rules.

However, there are no such rules at the level of corporate law applicable to LLCs, while LLCs are the most popular form of Ukrainian business entities used by domestic and foreign investors and entrepreneurs.

At the same time, the corporate laws of other countries, including the United States, Canada, the United Kingdom, and the EU countries, contain rules on additional capital, which may sometimes be referred to as “additional paid-in capital“, “share premium“, etc.

As a result, many investment transactions that essentially involve Ukrainian LLCs are structured through foreign jurisdictions, because the Ukrainian jurisdiction is not only subject to the traditional legal flaws and risks, but also Ukrainian law does not have a mechanism for structuring and executing investments, in the way venture capital and private equity investments are traditionally structured and made.

The Draft Law 13002 aims to remedy this defective mechanism. The proposed provisions of this draft law are quite pointed, but at the same time specific. The Draft Law 13002 proposes to change the title of Article 12 of the LLC Law to “Charter Capital and Additional Capital of the Company” and to supplement this article with a new paragraph four as follows:

“Separately from the authorised capital of the company, the company’s charter may provide for the creation of additional capital of the company at the expense of contributions of its participants. Contributions to the company’s additional capital shall be made by the shareholders without changing the nominal value or changing the amount of the company’s share capital. The decision of the general meeting of shareholders on raising a contribution to the additional capital of the company shall determine the amount of such contribution. The contribution of a company’s shareholder to the additional capital of the company may be in the form of money, securities, other assets, unless otherwise provided by law.”

The adoption of the Draft Law 13002 will make investments directly into Ukrainian LLCs or, as they are called in the private equity and venture capital industry, “cash-in” investments more attractive. It is no secret that attracting such investments is important for the development and, unfortunately, often for the reconstruction of many Ukrainian enterprises that have suffered from the aggression of the russian federation.

Such investments can also serve as a mechanism for attracting venture capital investments in Ukrainian start-ups, in particular in those start-ups that work in the field of dual-use and military technologies, especially at an early stage when start-ups are not yet “mature” enough to be structured through foreign holdings.

Most importantly, the adoption of Draft Law 13002 will allow LLC founders, who have worked hard and achieved value growth, to avoid dilution when attracting outside investments in their companies. It will also allow outside investors to have a legal instrument that they, as well as their legal counsels, can rely on when structuring and implementing investments into LLCs.

The Ukrainian Venture Capital & Private Equity Association (UVCA) was honoured to initiate the development of the solution to the existing legal gap and is grateful to MP Yaroslav Rushchyshyn and the Parliamentary Committee on Economic Development for their legislative initiative and cooperation in the legislative process in the Parliament on the Draft Law 13002. UVCA hopes that the Draft Law will be supported by the Parliament and become part of Ukrainian legislation.