In a fundamental restructuring of Ukraine’s legislative framework, the 2003 Commercial Code will be abolished on 28 August 2025, with the Civil Code remaining as the principal legislative act regulating business and civil law relations. Elimination of the Commercial Code and the introduction of new rules to eliminate discrepancies and modernise Ukrainian law and bring it more in line with European law, are found in a law (“On Peculiarities of Regulation of Legal Entities of Certain Organizational and Legal Forms in the Transition Period and Associations of Legal Entities”) dated 9 January 2025. The various legal forms of doing business in Ukraine will be directly impacted by the elimination of the Commercial Code as the new rules require legal entities to take steps to align their business form with the law.
For the past 22 years, the Civil Code and Commercial Code, which contain overlapping provisions, have operated simultaneously. The Civil Code regulates the general civil law, including property law, contract law, IP law, etc. The Commercial Code addresses commercial relations between companies and other business entities and provides for specific legal regimes and concepts for the operation of state-owned companies. There has been a long dispute as to whether both codes are needed. After revocation of the Commercial Code, the Civil Code will be the principal legislative act regulating both business and civil law relations.
All corporate enterprises must be reorganised into a modern corporate entity, such as a joint stock company (JSC) or limited liability company (LLC) within a three-year transition period ending 28 August 2028. The following corporate forms will be affected:
Municipal enterprises will have to be converted to JSCs or LLCs, or a non-profit company, with the relevant municipality or other territorial community owning 100% of the shares.
“Private enterprises” (i.e., companies with only one individual as a shareholder), “foreign enterprises” (i.e., companies with only one foreign shareholder) and “subsidiary enterprises” (i.e., companies with only one legal entity as shareholder) must be converted to LLCs. There is currently no substantive difference between these types of entities and LLCs with one shareholder.
All contract law provisions previously regulated by the Commercial Code, such as the terms and conditions of contracts and the procedure for signing and parties’ obligations, will be governed by the Civil Code. This change may create challenges for business entities, insofar as some contracts, such as procurement, energy supply and commercial agency agreements, are not specifically named in the Civil Code. The contracting parties may now enter into such non-named contracts, based on the “freedom of contract” concept.
The Commercial Code refers to the “right of economic management” and “right of operational management” in relation to the property of state-owned companies. The theory is that the state is the true owner of state property, while a state-owned company is only managing such property. These legal concepts will be replaced by a more commonly used “usufruct” concept, which allows entities that possess and use state assets to receive income from such assets without the possibility of selling or transferring the assets.
The new law also affects the legal treatment of land plots owned by state and municipal enterprises. The legal concept of the “right of permanent use,” in relation to state-owned and municipal enterprises, will be replaced with a more common land lease agreement, up to 50 years.
There is a new requirement that the sale and use of state assets of companies where the state owns more than 50% will be through an open online trading system (Prozorro), which should ensure better control over the use of state assets and more open access for private business.
State-owned enterprises will be required to publish financial reports audited by an independent auditor.
The abolition of the Commercial Code is a significant commercial law reform that will harmonise Ukrainian law with European law. For the most part, the changes address state-owned companies, their assets, reporting and operation. Private business entities will be affected to a somewhat lesser degree, but they should understand the new rules and consider the legal implications for the operation of their business. Such businesses should use the transition period to review and update their current legal forms and contract structure in Ukraine in line with the new legislation.
Viacheslav Petrashenko
BDO in Ukraine
Background
For the past 22 years, the Civil Code and Commercial Code, which contain overlapping provisions, have operated simultaneously. The Civil Code regulates the general civil law, including property law, contract law, IP law, etc. The Commercial Code addresses commercial relations between companies and other business entities and provides for specific legal regimes and concepts for the operation of state-owned companies. There has been a long dispute as to whether both codes are needed. After revocation of the Commercial Code, the Civil Code will be the principal legislative act regulating both business and civil law relations.
Reorganisation of Old Corporate Forms
All corporate enterprises must be reorganised into a modern corporate entity, such as a joint stock company (JSC) or limited liability company (LLC) within a three-year transition period ending 28 August 2028. The following corporate forms will be affected:
- State-owned enterprises;
- Municipal enterprises;
- Private enterprises;
- Foreign enterprises;
- Subsidiary enterprises;
- Enterprises of citizens' associations (trade unions, religious organisations); and
- Consumer cooperative enterprises.
Municipal enterprises will have to be converted to JSCs or LLCs, or a non-profit company, with the relevant municipality or other territorial community owning 100% of the shares.
“Private enterprises” (i.e., companies with only one individual as a shareholder), “foreign enterprises” (i.e., companies with only one foreign shareholder) and “subsidiary enterprises” (i.e., companies with only one legal entity as shareholder) must be converted to LLCs. There is currently no substantive difference between these types of entities and LLCs with one shareholder.
Regulation of Contracts
All contract law provisions previously regulated by the Commercial Code, such as the terms and conditions of contracts and the procedure for signing and parties’ obligations, will be governed by the Civil Code. This change may create challenges for business entities, insofar as some contracts, such as procurement, energy supply and commercial agency agreements, are not specifically named in the Civil Code. The contracting parties may now enter into such non-named contracts, based on the “freedom of contract” concept.
Replacement of Obsolete Ownership Concepts
The Commercial Code refers to the “right of economic management” and “right of operational management” in relation to the property of state-owned companies. The theory is that the state is the true owner of state property, while a state-owned company is only managing such property. These legal concepts will be replaced by a more commonly used “usufruct” concept, which allows entities that possess and use state assets to receive income from such assets without the possibility of selling or transferring the assets.The new law also affects the legal treatment of land plots owned by state and municipal enterprises. The legal concept of the “right of permanent use,” in relation to state-owned and municipal enterprises, will be replaced with a more common land lease agreement, up to 50 years.
State Asset Management
There is a new requirement that the sale and use of state assets of companies where the state owns more than 50% will be through an open online trading system (Prozorro), which should ensure better control over the use of state assets and more open access for private business.
Financial Reporting
State-owned enterprises will be required to publish financial reports audited by an independent auditor.
Conclusion
The abolition of the Commercial Code is a significant commercial law reform that will harmonise Ukrainian law with European law. For the most part, the changes address state-owned companies, their assets, reporting and operation. Private business entities will be affected to a somewhat lesser degree, but they should understand the new rules and consider the legal implications for the operation of their business. Such businesses should use the transition period to review and update their current legal forms and contract structure in Ukraine in line with the new legislation.Viacheslav Petrashenko
BDO in Ukraine