Changes in the regulation of legal entities after the abolition of the Сommercial Code

After 4 years of discussions and review, Draft Law No. 6013 “On Particularities of Regulating the Activities of Legal Entities of Certain Organizational and Legal Forms in the Transitional Period and Associations of Legal Entities” (the "Law") was adopted by the Verkhovna Rada of Ukraine on 9 of January 2025.

The Law is currently awaiting the President’s signature.

The key change is the abolition of the Commercial Code of Ukraine (Commercial Code), aimed at resolving inconsistencies between the Civil Code of Ukraine (Civil Code) and special legislation. While the Law includes important provisions for business, its primary focus is on the reform of corporate governance in the public sector. A transitional period of 3 years from the date the Law is enacted (the "Transitional Period") will allow businesses and the public sector to adapt to the new regulatory environment.

Key takeaways

1. Gradual Termination of Enterprises. The objectives are to be achieved via the following restrictions:

• The establishment of new enterprises (including private enterprises, subsidiaries, etc.) is prohibited;
• Mandatory corporatization of state enterprises and voluntary corporatization for municipal enterprises.

Enterprises where the sole participant is the state must begin the termination process within 6 months from the date the Law is enacted. State enterprises must either liquidate or transform into business entities. If this requirement is not met, the enterprise's unified property complex will be transferred to the management of the State Property Fund of Ukraine.

During the transformation of enterprises, the following conditions must be adhered to: (1) state/municipal property is contributed to the charter capital of the successor at its book value without valuation; (2) creditors may not demand termination, early execution of obligations; (3) permits and licenses remain valid until their expiration date; (4) outstanding tax liabilities, levies, and contributions do not prevent the registration of the transformation.

• Alignment of enterprises' articles of associations and internal regulations with the Law.

The Law of Ukraine "On Limited Liability Companies and Additional Liability Companies" will apply to private enterprises, subsidiaries, and other non-standard legal forms (excluding state/municipal enterprises), where the relevant legal relations are not regulated by the articles of associations of such enterprises.

If, within the Transitional Period, the owner (authorized governing body) has not decided on the termination of a private enterprise or subsidiary, the activities of such enterprises will continue to be governed by the Law of Ukraine "On Limited Liability Companies and Additional Liability Companies." The articles of associations will be invalid to the extent that they contradict the specified law.

2. Usufruct will replace the right of economic and operational management.

The Law provides that the rights of economic and operational management will cease 3 years from the date the Law is enacted, although they may be terminated earlier during the transformation process:

• Property transferred under the right of economic management will be contributed to the charter capital of the successor.
• Property that is not subject to privatization or was under operational management will be transferred under usufruct (a property right allowing to use, possess and keep any profit made from it).

3. Abolition of the Commercial Code of Ukraine

The Commercial Code will lose its force 6 months after the Law comes into effect. The Civil Code will replace the Commercial Code in most areas, including the regulation of legal entities, obligations, and contractual relations. Some provisions will be transferred to the Law (e.g., definition of economic activity, rules regarding associations of legal entities as well as administrative sanctions). The Law will enter into force on the next day following its promulgation and will be enacted 6 months afterwards.

For more information, please contact Maryan Martynyuk, Senior partner, m.martynyuk@moris.law and Tetiana Kostiuk, Associate, t.kostiuk@moris.law.