By the extent of its influence on a company, the adopted Law of Ukraine “On Limited Liability and Additional Liability Companies” (the Law) is comparable with the adoption of the Civil and Economic Codes of Ukraine in 2013, since a limited liability company (LLC) is the most popular business incorporation form in Ukraine which leave other competitors far behind. A set of positive innovations introduced by the Law must not go unmentioned. At the same time, it has brought an imbalance into the principle of proportionality of the share in an LLC’s authorized capital.

The purpose of the article is to elucidate the principle of proportionality of the share in an LLC’s authorized capital to the right of control in Ukrainian law.

If an LLC does not observe the principle of proportionality of the share in the authorized capital to a real contribution, third parties will not have access to information about the percentage ratio. Hence, there is a danger that contractors may be misled about the real state of affairs in a company’s corporate governance, and a threat that claims may be filed for redistribution of shares within the LLC. Using a comparative logical method, the author compared the Ukrainian terminology concerning the share in the authorized capital with German legislation which is the closest to Ukrainian legislation, and made a conclusion that in the German legislation this principle is appropriately observed.

The principle of proportionality of the share in an LLC’s authorized capital to the right of control comprises a fundamental practical task: its observance is the key in furnishing the appropriate information about a member’s real contribution in terms of the voting capability at the general meeting. This enables third parties to realistically assess the distribution of corporate governance in a company. Conversely, if this principle is neglected, this can entail an abuse of corporate rights as well as third-party rights. The Law breaches the proportionality principle. This problem is aggravated by the fact that there are numerous conflicts in the Law proper and in its relation to the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations”. Changes to the Law are needed to ensure its compliance with the principle of proportionality of the share in an LLC’s authorized capital to the right of control, namely, Part 2 of Article 14 should be rewarded as follows: “The value of the contribution made by each member of the company should correspond to the nominal value of its share”, and Part 3 of Article 29 as follows: “At the general members meeting each company member shall be entitled to the number of votes which is proportional to the size of this member’s share in the authorized capital of the company.”

Bibliography

Authored books

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2. Lukach I, Teoretychni problemy pravovoho rehuliuvannia korporatyvnykh vidnosyn v Ukraini [Theoretical Issues of Legal Regulation of Corporate Relations in Ukraine] (Lira-K 2015) (in Ukrainian).

Websites

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5. Daskaliuk O, ‘Equity and Management: novi mozhlyvosti dlia uchasnykiv tovarystv z obmezhenoiu vidpovidalnistiu’ [‘Equity and Management: New Opportunities for Members of Limited Liability Companies’] (IuRYST & ZAKON) <http://uz.ligazakon. ua/ua/magazine_article/EA011399> (accessed: 04.05.2019) (in Ukrainian).