A relevant question for every participant of a limited liability company is: “On what grounds can I, as an LLC participant, voluntarily or forcibly terminate my participation in the LLC?”. Almost a year ago, a new Law on LLCs came into effect, which significantly changed the procedure and conditions for state registration of changes to the composition of LLC participants. Who should submit the documents regarding the change of LLC participants and from what moment a person is considered a new participant of the LLC, we will consider in this article.

The grounds for changing the composition of LLC participants are:

• expulsion of a participant from the LLC;
• alienation of a share in the charter capital by a participant;
• transfer of a share to an heir or legal successor;
• voluntary withdrawal of a participant from the LLC.

Let’s consider each ground for changing the composition of the company’s participants in more detail.

Expulsion of a participant

In the new Law on LLCs, the grounds for expelling a participant have significantly changed. There are only two of them.

The first ground. If a participant of the company has not made a contribution to settle the debt within the provided additional period, the executive body of the company must convene a general meeting of participants, which may decide to expel the participant of the company who has a debt for making a contribution (Part 2 of Art. 15 of the Law on LLCs).

Example. L.I. Kondratyuk has been a participant of “GIK” LLC since 01.07.18. According to information from the Unified State Register, L.I. Kondratyuk’s contribution is 10,000.00 UAH. According to Part 1 of Art. 14 of the Law on LLCs and the Charter of “GIK” LLC, each participant of the company must fully make their contribution within 6 months from the date of state registration of the company. As of 01.01.19, L.I. Kondratyuk has not made his contribution. The director of “GIK” LLC on 01.02.19 sent L.I. Kondratyuk a written warning about the delay with the definition of an additional period for settling the debt of 30 calendar days. L.I. Kondratyuk received the notice on 05.02.19 and did not settle his debt within 30 calendar days. In such a case, the general meeting of participants has the right to decide on the expulsion of the participant from the LLC.

The second ground. The general meeting of LLC participants can decide to expel a participant from the LLC in connection with:

• for participants — individuals: death, declaration by a court as missing or deceased;
• termination of a participant – a legal entity.

Such expulsion is possible if within 1 year from the day of the end of the period for accepting inheritance (6 months), the heirs (legal successors) of such a participant have not submitted an application for admission to the company. This provision comes into force on June 18, 2019 (Part 2 of Art. 23 and Part 1 of Final Provisions of the Law on LLCs).

Example. In “NIK” LLC there are 2 participants – S.H. Melnyk (50%) and D.I. Ivanyuk (50%). S.H. Melnyk died on 01.06.17. S.H. Melnyk’s heirs did not apply to the LLC with an application for admission to “NIK” LLC within 18 months from the moment of the participant’s death. Information about participant S.H. Melnyk continues to be contained in the Unified State Register. From 18.06.19, the general meeting of participants of “NIK” LLC receives the right to decide on the expulsion of such a participant from the LLC.

Decisions of the general meeting of participants regarding the expulsion of a participant from the LLC must be made unanimously by all participants of the company (Part 3 of Art. 34 and Part 5 of Art. 30 of the Law on LLCs).

At the same time, the votes corresponding to the share of a participant who has a debt to the company are not taken into account when determining the voting results for making a decision (Part 3 of Art. 15 of the Law on LLCs). That is, if a participant is expelled from the LLC on the grounds of not making their contribution, their votes are not taken into account during voting.

In the event of death, declaration by a court as missing or deceased of a participant – an individual (or termination of a participant – a legal entity), whose share in the charter capital of the company is less than 50%, the decision of the general meeting of participants is also made without taking into account the votes of the participant being expelled. In the event that the share of such a participant exceeds 50%, the company can make decisions exclusively related to the liquidation of the company, without taking into account the votes of this participant (Part 2 of Art. 23 of the Law on LLCs). Thus, in the event of the death of a participant – an individual (or termination of a participant – a legal entity), his votes are not taken into account when voting at the general meeting of participants, provided that his share in the LLC is less than 50%.

For state registration of a change in the composition of participants by expulsion, the following are submitted (para. 1, Part 5, Art. 17 of the Law on State Registration):

1. an application for state registration of changes to this information (Form 3);

2. a document on the payment of the administrative fee;

3. a notarized decision of the general meeting of participants of the company on the expulsion of a participant from the company.

4. a notarized copy of the document establishing the fact of the participant’s death (death certificate), his declaration by a court as missing or deceased (court decision) or termination of a participant – a legal entity (extract from the USR).

These documents are submitted to the state registrar by the head of the LLC or an authorized person by power of attorney (para. 6, Part 5, Art. 17 of the Law on State Registration).

Alienation of a share in the charter capital of an LLC

Alienation of a share in the charter capital of an LLC is formalized by a purchase and sale, exchange, or gift agreement. What a participant who wishes to alienate their share needs to remember:

Condition 1. An LLC participant has the right to alienate their share in the charter capital only in the part in which it is paid (Part 3 of Art. 21 of the Law on LLCs). That is, before alienating a share, make sure that you have made a contribution to the charter capital of the LLC, which is recorded in the Unified State Register.

Condition 2. An LLC participant has a pre-emptive right to purchase the share of another participant of the company, which is sold to a third party (Part 1 of Art. 20 of the Law on LLCs).

An LLC participant who intends to sell their share to a third party is obliged to notify other participants of the company in writing about this and inform them about:

1. the price;

2. the size of the share being alienated;

3. other conditions of such a sale.

If none of the LLC participants within 30 days from the date of receiving the notice of the participant’s intention to sell the share has notified him in writing of the intention to use their pre-emptive right, it is considered that such a participant of the company has granted his consent to the sale of the share on the 31st day from the date of receiving the notice. Then such a share can be alienated to a third party on the conditions that were communicated to the LLC participants (Part 3 of Art. 20 of the Law on LLCs).

If an LLC participant who intends to sell their share to a third party has received a written statement from another participant about the intention to use their pre-emptive right, such participants are obliged within one month to conclude a purchase and sale agreement for the share offered for sale (Part 4 of Art. 20 of the Law on LLCs).

An LLC participant has the right to demand in court the transfer to himself of the rights and obligations of the buyer of the share if the pre-emptive right of such a participant of the company is violated. The statute of limitations for such claims is one year (Part 5 of Art. 20 of the Law on LLCs).

The pre-emptive right to purchase a share by other LLC participants applies to share purchase and sale agreements and does not apply, for example, to a share gift agreement.

Condition 3. After concluding the purchase and sale, exchange, or gift agreement, the seller is obliged to conclude with the buyer a notarized act of acceptance and transfer of the share in the charter capital of the company (para. 1, Part 5, Art. 17 of the Law on State Registration).

It is the act of acceptance and transfer of the share that is the basis for state registration of changes to the composition of participants in connection with the alienation of the share, not the agreement.

Condition 4. Also, the Law on State Registration grants the right to the seller or buyer to register changes to the composition of participants without a decision of the general meeting of participants (para. 5, Part 5, Art. 17 of the Law on State Registration).

Example. In “NIK” LLC there are 2 participants – S.H. Kononenko and D.I. Huk.

S.H. Kononenko concluded a purchase and sale agreement with participant D.I. Huk, and after that a notarized act of acceptance and transfer of the share in the charter capital of the LLC. S.H. Kononenko does not need to hold a general meeting of participants of “NIK” LLC and ask the Director of the Company to submit documents to the registration service. He can independently submit documents to the state registrar and change the composition of the LLC participants.

For state registration of a change in the composition of participants by alienation of a share, the following documents are submitted (para. 1, Part 5, Art. 17 of the Law on State Registration):

1. an application for state registration of changes to this information – Form 3;

2. a document on the payment of the administrative fee;

3. a notarized act of acceptance and transfer of the share in the charter capital of the company.

These documents are submitted to the state registrar either by the new owner of the share in the charter capital of the LLC, or by the previous owner (para. 6, Part 5, Art. 17 of the Law on State Registration).

An interesting question: from what moment is a person considered a new participant of the LLC — from the day of concluding the agreement or from the day the state registrar enters information about the participant into the Unified State Register?

The Supreme Court in its decree dated 13.11.18 in case No. 910/605/18 stated: “The right of ownership of a share in the charter capital of an LLC or ALC for a third party arises from the moment the agreement is concluded, unless otherwise established by the agreement of the parties… Acquisition of ownership of a share in the charter capital gives a third party the right to join the LLC.

The right of participation in an LLC is a personal non-property right, and therefore, automatic acquisition of the status of a company participant in connection with the acquisition by a third party of the ownership right to a share in the charter capital does not occur…

…according to the provisions of Article 89 of the Civil Code of Ukraine, information about changes in the composition of LLC or ALC participants is subject to entry in the Unified State Register…”.

So it can be concluded: the moment when a person is considered a full participant of the LLC is the entry of information about such a person into the Unified State Register.

Alienation of a share by foreclosure

Now the executor also has the right to foreclose on the share of an LLC participant provided that the debtor lacks funds and other property sufficient to satisfy the claims of the collector.

How the procedure for foreclosure on the share of an LLC participant takes place:

Step 1. Foreclosure on the share of an LLC participant is carried out in execution of an executive document on the recovery of funds from the participant or on the basis of an executive document on foreclosure on the share of a property guarantor (Part 1 of Art. 22 of the Law on LLCs).

The executor notifies the LLC of the intention to foreclose on the share of the LLC participant (debtor) and sends a resolution on the imposition of an arrest on the share.

Step 2. The LLC must within 30 days from the day of receiving such notice provide information necessary for calculating the value of the debtor’s share (Part 2 of Art. 22 of the Law on LLCs). The value of the participant’s share is determined based on the market value of the set of all shares of the LLC participants in proportion to the size of the share of such a participant.

Also, the LLC is obliged to provide the executor and the debtor with access to financial reporting documents, other documents necessary for determining the value of the debtor’s share (Part 3 of Art. 22 of the Law on LLCs).

Step 3. Within 15 days from the day of the end of the 30-day period, the executor calculates the value of the debtor’s share and offers other LLC participants to purchase the share (Parts 4, 5 of Art. 22 of the Law on LLCs). The buyer must pay the value of the share within 10 days from the day the purchase and sale agreement is concluded (Part 6 of Art. 22 of the Law on LLCs).

Step 4. If the LLC does not fulfill the above-mentioned obligations or if the LLC participants do not use the right to purchase the share, or if the purchase and sale agreement is considered terminated, the share is transferred for sale at an auction in the general order (Part 8 of Art. 22 of the Law on LLCs).

Transfer of a share to an heir or legal successor of a participant

In the event of death or termination of a company participant, his share passes to his heir or legal successor without the consent of the company’s participants (Part 1 of Art. 23 of the Law on LLCs).

That is, obtaining a decision of the general meeting of the LLC for including an heir or legal successor is not required.

For state registration of a change in the composition of participants, it is sufficient for the heir or legal successor of the participant to submit the following documents to the state registrar (para. 1, Part 5, Art. 17 of the Law on State Registration):

1. an application for state registration of changes to this information – Form 3;

2. a document on the payment of the administrative fee;

3. a notarized application for admission to the LLC;

4. a notarized copy of the document confirming the acquisition of the right to inheritance (inheritance certificate) or proof of legal succession (extract from the USR).

If according to the company’s charter the consent of other participants for admission to the company is required, such consent is also submitted, the authenticity of the signatures on which is notarized.

Withdrawal of a participant from the company

A company participant whose share in the charter capital of the company is less than 50% can withdraw from the company at any time without the consent of other participants.

For the withdrawal of a participant whose share is 50% or more, the consent of other participants will be needed (Parts 1, 2 of Art. 24 of the Law on LLCs).

Example. In “KIK” LLC there are 2 participants – S.H. Ivanchuk (40%) and D.I. Petrov (60%). The charter of “KIK” LLC does not contain a requirement that the withdrawal of a participant with less than 50 percent takes place with the consent of other participants of the LLC. S.H. Ivanchuk notarized his statement of withdrawal from the LLC. According to the requirements of current legislation, S.H. Ivanchuk has the right at any time, without the consent of D.I. Petrov, to withdraw from the composition of participants of “KIK” LLC by applying to the subject carrying out state registration with the package of documents mentioned below.

A participant who has decided to withdraw from the LLC should:

Step 1. Apply to a notary for the formalization of the withdrawal statement.

Step 2. Notify the LLC of his withdrawal by sending a notarized copy of the statement. Proper evidence of notifying the LLC of the participant’s withdrawal is the inventory of the attachment to the mailing envelope, which states that the participant’s withdrawal statement is attached, and a document confirming the provision of postal services (cash receipt, payment slip) – (item 61 of Postal Rules).

Step 3. For an LLC participant whose share in the charter capital of the company is 50% or more — obtain the consent of other LLC participants regarding granting consent to withdrawal (Part 2 of Art. 24 of the Law on LLCs).

Step 4. The participant who withdraws from the LLC submits the following documents to the state registrar for registration of changes to the composition of participants (para. 1, Part 5, Art. 17 of the Law on State Registration):

1. an application for state registration of changes to this information – Form 3;

2. a document on the payment of the administrative fee;

3. a notarized statement of withdrawal from the LLC.

If according to the law or the LLC charter the consent of other participants for withdrawal from the company is needed, it will be necessary to also submit such consent, the authenticity of the signatures on which is notarized.

A participant is considered to have withdrawn from the company from the day of state registration of his withdrawal (Part 5 of Art. 24 of the Law on LLCs).

Step 5. No later than 30 days from the day when the LLC learned of the participant’s withdrawal, it is obliged to notify such former participant of the value of his share, provide a reasoned calculation and copies of documents necessary for the calculation. The value of the participant’s share is determined as of the day preceding the day of the participant submitting the relevant application to the state registrar (Part 6 of Art. 24 of the Law on LLCs).

Step 6. The LLC must pay the value of the share of the withdrawn participant within 1 year from the day when it learned or should have learned of the participant’s withdrawal, unless another period is provided by the LLC charter (Part 7 of Art. 24 of the Law on LLCs).

The value of the participant’s share is determined based on the market value of the set of all shares of the company’s participants in proportion to the size of the share of such a participant (Part 8 of Art. 24 of the Law on LLCs).

Regarding the mechanism for calculating market value, the new Law on LLCs does not directly establish any mandatory requirements for its determination. It is provided that the LLC charter may provide for a procedure for choosing an appraisal subject.

By agreement between the withdrawn company participant and the company, the obligation to pay funds can be replaced by an obligation to transfer other property (Part 9 of Art. 24 of the Law on LLCs). If there is no such agreement from the participant, the LLC is obliged to pay the value of his share in funds.

Also, it is worth paying attention to the procedure for calculating the administrative fee, which is paid for making changes to the composition of LLC participants on the four grounds described above.

Note: a participant withdrawing from an LLC, when applying to the state registrar, must pay an administrative fee in the amount of 0.3 of the subsistence minimum for able-bodied persons (576.30 UAH) (Part 1 of Art. 36 of the Law on State Registration). Also, a fee is collected for extracts from the Unified State Register, which are provided to the applicant, the company, persons who were listed in the register as company participants before the registration action, and persons who are listed in the register as company participants after the registration action (Part 4 of Art. 25 of the Law on State Registration). The cost of one extract is 0.01 of the subsistence minimum for able-bodied persons (19.21 UAH).