Key highlights

As part of Ukraine's integration with the European Union, the Law introduces a comprehensive reform to corporatize the enterprises and abolishes the Commercial Code of Ukraine dated 16 January 2003 ("Commercial Code"). The goal is to bring Ukraine's commercial laws in line with European standards, encourage investment, and enhance economic stability by updating business practices.

Key provisions

• Abolition of the Commercial Code: The Law eliminates the Commercial Code to resolve long-standing conflicts between it, the Civil Code of Ukraine, and sectoral legislation. Going forward, commercial matters will be governed primarily by the Civil Code of Ukraine, the Tax Code of Ukraine, and sector-specific laws.
• Corporatization of Enterprises:
  • Transformation of Existing Enterprises: Legal entities currently operating as private enterprises, foreign enterprises, subsidiary enterprises, enterprises of civil societies (including religious organizations and trade unions), and consumer cooperatives (together, "Private Sector Enterprises") are encouraged, though not required, to cease operations. If they continue to operate, they will be governed by the Law of Ukraine "On Limited and Additional Liability Companies", dated 6 February 2018 ("LLC Law").
  • Prohibition on New Establishments: The incorporation of new entities in any form of enterprise will be prohibited from the date of the Law's enactment.
• Reform of State and Municipal Enterprises:
  • Mandatory Transformation: All state-owned enterprises must be reorganized into joint stock companies (JSCs), limited liability companies (LLCs) or non-profit companies within six months of the Law's effective date.
  • Voluntary Transformation: Municipal enterprises may choose to convert into JSCs, LLCs, or non-profit companies based on their specific needs.
  • Implementation of Transparent Property Management: The outdated models of economic management and operational control will be replaced by a usufruct-based property management system, in line with EU and market economy principles. This system will apply to assets not subject to privatization.
  • Updated Financial Reporting Requirements: State-owned enterprises and companies with more than 50% state ownership must publish financial statements within six months of the Law's enactment.
• Transition Period: The Law introduces a three-year transition period to allow both public and Private Sector Enterprises to adapt to the new legal framework. During this time, enterprises are expected to bring their charters and internal documents into compliance with the Law, complete any required corporate transformations, or cease operations, where appropriate. At the end of the transition period, constituent documents of Private Sector Enterprises that do not comply with the LLC Law will be deemed invalid.

Conclusion

In the coming years, Ukraine will undergo a substantial restructuring of its legal framework for legal entities, particularly enterprises. These reforms aim to modernize the economy, enhance legal and operational transparency, and support Ukraine's alignment with European Union standards.

Actions to consider

To avoid potential legal and operational challenges, Private Sector Enterprises should consider transforming into modern legal forms such as JSCs or LLCs. All enterprises are recommended to review and update their charters and internal regulations to ensure full compliance with the new legal framework. State-owned enterprises should begin restructuring promptly to meet the six-month deadline for mandatory transformation, enhance financial reporting practices, and prepare to implement the new usufruct-based property management system.