BUSINESSINDIVIDUALS

Purchase of Business

One of the property items a foreign person may purchase in Ukraine is a business that he/she may acquire by purchasing shares of a business company or shares in the authorized capital.

As a result of company shares acquisition by a foreign investor the latter acquires corporate rights in this company. Joint-stock companies in Ukraine are divided into two types of public and private ones with the way of shares placement being their distinct feature. The shares of public joint stock company are placed freely on the stock exchanges. A shareholder of a public joint company may dispose his shares without the consent of other shareholders.

The shares of a private joint stock company are not placed on the stock exchanges. A shareholder of a private company is entitled to dispose his shares only in the absence of provisions in the articles of association providing other shareholders with a preferential right to purchase these shares or waiver of this right.

Thus, the procedure of shares acquisition depends on the type of a joint stock company. The shares of a private joint stock company are purchased by means of share purchase agreement conclusion by a selling shareholder. Such an agreement mandatorily required to be made with the engagement of professional participants of the securities market (agent, broker), who has a license for carrying out broker activities.

Prior to entering into the aforesaid agreement, the investor shall open a securities account at the custodian of shares to which the purchased shares are transferred by investor after the agreement is concluded. Typically, this account is opened at a custodian which also maintain the opened accounts of other shareholders and on which the shares are hold. The custodian is also a professional participant of the securities market securities market, which operates under a license.

After the shares are credited to the securities account the custodian issues an abstract of securities account which is a document confirming the investor’s ownership right to the purchased shares. 

The acquisition of public joint stock company shares, which are placed on the stock exchange, is carried out by the conclusion of exchange-traded contract involving professional participant of the securities market – brokerage company registered at the stock exchange. The brokerage company acts for and on behalf of the investor and performs other actions necessary for the conclusion of exchange-traded contract or other actions required under the rules of the stock exchange. 

The acquisition of shares in the authorized capital of a company is done by means of the equity rights purchase agreement conclusion with the person who is a participant of the company and owns some shares in its authorized capital. It should be noted that a shareholder has the right to sell or otherwise alienate its share (or it’s part) in the authorized capital to third parties unless the preferential right of its shareholders to purchase these shares is otherwise provided by the company charter. If the company participants (shareholders) do not exercise their preferential right within a month's notice of intention to sell the share (part of it) or within other period established by the company charter or agreement between the participants, the share (part thereof) may be alienated to a third party. 

Therefore, in case the foreign investor decides to purchase any shares in the share capital of a company, the latter should consider the constituent documents of this company for the presence (absence) of other participants’ preferential right to purchase shares in the authorized capital of the company. 

The equity rights purchase agreement shall be concluded in writing but it does not mandatorily subject to notarization.

After conclusion of the above mentioned agreement, the authorized body of the company shall take decision on acceptance of the investor as company participant (shareholder).

Due to this equity rights purchase agreement conclusion there shall take place a change of company participants. These changes are subject to state registration, which shall be implemented by the registrar of the State Registration Service of the Ministry of Justice of Ukraine at the place of company registration.

It should be taken into account that the acquisition of corporate rights is usually associated with a number of significant risks, as while company purchasing, an investor acquires not only assets but also liabilities (debts, obligations, etc.) of the purchased company. 

In this regard, while agreement preparing the necessary step shall be taken to conduct due financial, tax or legal analysis of the company either individually or thorough an audit company engagement.

In the course of company audit performance the following issues* shall be considered in this regard:

  1. Company history, corporate rights to be purchased. It is necessary to find out whether the company was legally establishes and under which title, the activities company was conducting and the area or territory it was operating in. In this case, the constituting documents, licenses, permits, certificates and other documents issued by the relevant authorities with regard to the company shall be studied thoroughly.
  2. Property owned by the company (both movable and immovable, property rights) as well as its liabilities. It should be established whether the company has any property liens, lawsuits and court proceedings against it or its assets.
  3. Agreements concluded by the company that may affect the profitability of the company acquisition for the investor. 

* To see the section services: “Search for information about counterparty