In Ukraine, as in most European countries, it is possible to conduct business individually – in Ukraine, this is defined as an individual entrepreneur (IE), or through legal entities.
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The most popular form of microbusiness and small business is the sole proprietorship.
Registering as a sole proprietor is quite simple, and it is possible to register remotely via the Internet, using certain government websites. Such registration, together with registration with the tax authorities and opening a bank account, takes 2-3 days.
This form of doing business does not require the drafting of any corporate agreements, charters, etc. The documents that give you the right to do business are a sole proprietorship registration document and a certificate of registration from the tax authority. To register, you need a passport and a tax code.
Foreigners have the right to register as sole proprietors and conduct business in Ukraine, but in order to register, they must first obtain a tax number, which can be done
independently or through a representative.
Sole proprietorships have the right to run their business either independently or with the involvement of hired labor. The number of employees that can work for a sole proprietorship depends on the chosen taxation system.
Sole proprietors can choose either the simplified taxation system or the general taxation system. As a rule, sole proprietorships choose the simplified taxation system, and there are several types of taxation:
Group 1: Individual entrepreneurs who do not employ employees. The annual income of such a sole proprietorship cannot exceed UAH 1,185,700, which is approximately USD 29,500 per year.
Group 2: The number of people in labor relations with them does not exceed 10 people at a time.
The annual income of such a sole proprietor may not exceed UAH 5,921,400, which is approximately USD 147,300 per year.
Ukrainian legislation provides for significant restrictions on the types of activities that a sole proprietorship may carry out by choosing the 1st and 2nd taxation groups. In particular, sole proprietorships of groups 1 and 2 are prohibited from carrying out the following activities: organizing and conducting gambling, lotteries, bookmaking; foreign
exchange; mining, sale of minerals, financial intermediation, business management; postal services, sale of art and antiques, organization of auctions (auctions) of art, collectibles or antiques; organization of touring events; etc.
Group 3: Individual entrepreneurs may use the labor of hired persons; the number of persons in labor relations with them is not limited. The annual income of such an individual entrepreneur may not exceed UAH 8,285,700, which is approximately USD 206,111 per year.
Unfortunately, non-residents of Ukraine are not eligible for Group 3 taxation, i.e., foreigners must have not only a tax number but also a permanent residence permit in Ukraine to conduct business under Group 3.
Group 4: agricultural producers – individual entrepreneurs who operate exclusively within a farm.
As for legal entities, Ukrainian legislation provides for the following types of legal entities:
Linguistic Diversity: Israel is a linguistically diverse country with Hebrew as the official language. However, English is widely used in business. Understanding the linguistic landscape can be essential for effective communication with clients, partners, and authorities.
A private enterprise is an enterprise that operates based on private ownership of one or more citizens, foreigners, stateless persons and his or her labor or with the use of hired labor. A private enterprise is also an enterprise operating on the basis of private ownership of a legal entity.
An enterprise with foreign investments. An enterprise with at least 10% of its authorized capital in foreign investment is recognized as an enterprise with foreign investment. An enterprise acquires the status of an enterprise with foreign investments from the date of crediting a foreign investment to its balance sheet. A foreign investment is a value invested by foreign investors in investment objects in accordance with the law. Foreign investments may be made in objects in which investment is not prohibited by the laws of Ukraine.
Enterprises with foreign investments have the right to be founders of subsidiaries, establish branches and representative offices in Ukraine and abroad in compliance with
the requirements of the legislation of Ukraine and the legislation of the respective states. The law may determine the sectors of economy and/or territories in which the
total amount of participation of a foreign investor is established, as well as the territories in which the activities of enterprises with foreign investments are restricted or prohibited based on the requirements of national security.
A foreign enterprise is a unitary or corporate enterprise established under the laws of Ukraine and operating exclusively on the basis of ownership by foreigners or foreign legal entities, or an operating enterprise acquired in full ownership by such persons. Foreign enterprises may not be established in industries defined by law as being of strategic importance for the security of the state. Branches, representative offices and other separate subdivisions of enterprises established under the laws of other states shall operate in Ukraine in accordance with the laws of Ukraine.
Entrepreneurial companies.
Entrepreneurial companies are companies that carry out business activities with the aim of making a profit and its subsequent distribution among participants (business companies). They can be established only as:
Business partnerships:
- general partnership.
- limited partnership.
- limited liability company.
- additional liability company.
- joint stock company.
The most popular form of small and medium-sized business in Ukraine is the Limited Liability Company (LLC).
An LLC is a business entity (legal entity) that has an authorized capital divided into shares, the amount of which is determined by its constituent documents and is
liable for its obligations only with its property. Members of the company who have paid their contributions in full bear the risk of losses associated with the company’s activities to the extent of their contributions.
The founders of an LLC can be both individuals and legal entities, both citizens of Ukraine and foreigners and foreign companies. The minimum number of founders of an
LLC is 1 person, the maximum number of founders is not limited. An LLC operates on the basis of a charter; the charter may be individual or model.
The company’s shareholders have the right to enter into a Corporate Trust Agreement, under which the company’s shareholders undertake to exercise their rights and powers in a certain way or to refrain from exercising them. Additional parties to a corporate agreement may also be the company itself and third parties. A corporate agreement may provide for the terms and conditions or the procedure for determining the terms and conditions under which a shareholder has the right or obligation to buy or sell a share in the authorized capital (part thereof), as well as determine the cases when such a right or obligation arises. The content of a corporate agreement is not subject to disclosure and is confidential, unless otherwise provided by law or agreement. The parties to a corporate agreement may choose the law, subject to the provisions of the Law of Ukraine «On Private International Law».
A limited liability company has a fairly simple and fast registration procedure but is more complicated than the procedure for registering a sole proprietorship.
The third most popular type of company is a joint-stock company (JSC).
A JSC is a business entity that has a charter capital divided into a certain number of shares of equal nominal value and is liable for its obligations only with the company’s
property, and shareholders bear the risk of losses related to the company’s activities within the value of their shares, except in cases specified by law.
The shareholders of a company may be individuals and legal entities, as well as the state represented by a body authorized to manage state property, or a territorial community represented by a body authorized to manage municipal property, who own shares in the company.
The number of founders of a joint-stock company is not limited. If there are two or more founders of a joint-stock company, they may enter into a foundation agreement, which sets out the procedure for conducting joint activities to establish the company, the number, type and class of shares to be acquired by each founder, the nominal value
and cost of acquiring shares, and the term and form of payment for the shares. A joint-stock company operates on the basis of its Charter.
A joint stock company has a rather complicated, expensive and time-consuming registration procedure. To establish a joint-stock company, the founders issue its shares, hold a constituent assembly and carry out state registration of the joint-stock company.
As a rule, the form of a joint-stock company is chosen by large industrial enterprises and financial institutions: banks, insurance companies, etc.
Shares of such companies can be purchased from Ukrainian brokers, but the Ukrainian stock market is very underdeveloped.
Some large Ukrainian companies are listed on the Warsaw and London stock exchanges, but since the beginning of Russia’s large-scale invasion of Ukraine, the prices of such shares have fallen dramatically.
Article written by
Yaroslava Berezhna lawyer
Kyiv Ukraine
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