On 31 July 2025, Ukrainian Parliament adopted Law of Ukraine “On Amendments to Article 12 of the Law of Ukraine “On Limited and Additional Liability Companies”” (the “Law”), which regulates the existence and legal regime of additional capital (share premium) in limited and additional liability companies (“LLCs”).
In particular, the Law provides that:
- the charter of the company may provide for the creation of additional capital (share premium) at the expense of contributions made by its participants;
- such additional contributions do not change the nominal value of the participants’ participatory interests or the amount of the charter capital;
- the amount of the additional contribution is determined by the resolution of the general meeting of the company on the acceptance of the participant’s contribution to the additional capital (share premium); and
- an additional contribution may be made in cash or in kind, unless otherwise provided by the law.
The legal regime of the assets constituting the participant’s contribution to the additional capital (share premium), as well as the procedure for their disposal and the specifics of relations among the participants and the company regarding such assets, may be defined in the charter or the shareholders’ agreement.
The provisions of the Law enter into force on 27 August 2025.
In practice, even before the adoption of the Law, LLCs have been already using mechanisms of additional capital (share premium), relying on the discretionary nature of the relevant Ukrainian legislation. In particular, they applied the provisions of the Law of Ukraine “On Limited and Additional Liability Companies” stating that the nominal value of a participatory interest in the case of an increase of the charter capital may be increased by an amount equal to or less than the value of the additional contribution. In such cases, if a participant made an additional contribution exceeding the amount by which the nominal value of their participatory interest was increased, the excess amount was treated as additional capital (share premium) of the company.
The AVELLUM team closely monitored the progress of the Law adoption and has prepared a few proposals for improving the relevant regulation in the future:
Automatic Allocation of Contributions to Additional Capital
One of the proposals to the legislator is to introduce an automatic allocation of the excess of the value of an additional contribution over the nominal value of a participatory interest to the additional capital (share premium), unless otherwise provided by a resolution of the company’s general meeting. This would help regulate the status of participants’ contributions to the additional capital (share premium) made prior to the adoption of the Law.
Procedure for Valuation of Non-Cash Contributions
We also believe it would be appropriate to clarify that the procedure for evaluating in-kind contributions to the charter capital (in particular, by unanimous consent of all participants) should also apply to in-kind contributions made to a company’s additional capital (share premium).
Regulation of the Possibility for Third Parties to Contribute to Additional Capital
In addition, we believe that particular attention should be paid in the future to the right of third parties to make contributions to the additional capital (share premium) of LLCs, and to allow simultaneous contributions to both the charter capital and the additional capital (share premium). In practice, situations sometimes arise where an investor who intends to become a participant in the company wishes to contribute part of their investment to the company’s charter capital and another part to the additional capital (share premium), where the parties agree that the investment amount should not entirely dilute the participatory interests of the existing participants. Therefore, in our view, the law should provide for the possibility of contributions to the additional capital (share premium) by third parties who simultaneously become the participants of the company.
Tax Treatment of Contributions to Additional Capital
Equally important are changes related to the tax neutrality of participants’ contributions to the additional capital (share premium). We believe it is necessary to explicitly state that a company’s income in the form of contributions to additional capital (share premium) is not subject to corporate income tax – similar to contributions to the charter capital. The absence of such a provision leaves room for the risk that such contributions may be classified as non-repayable financial assistance, with the respective adverse tax consequences.
Overall, the changes introduced by the Law are certainly an important step towards establishing a more flexible capital management regime for LLCs. However, certain practical issues – such as the valuation of in-kind contributions to additional capital (share premium), the right of third parties to contribute to additional capital (share premium), and the tax qualification of such contributions – still require further legislative refinement.
Additional notes
This legal alert is issued to inform AVELLUM’s clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The information above does not constitute legal or other advice and should not be considered a substitute for specific advice in individual cases.
For further information on the Law and other issues related to the regulation of additional capital (share premium) in limited liability companies in Ukraine, please contact managing partner Mykola Stetsenko and managing associate Oleksandr Volodin.
