Abolition of the Commercial Code of Ukraine and other Corporate Law Amendments

On 28 February 2025 the Law of Ukraine No. 4196-IX “On Particularities of Regulation of Activities of Legal Entities of Certain Organizational and Legal Forms in the Transitional Period and of Associations of Legal Entities” adopted on January 9, 2025, took its effect. Some provisions will become effective later.

Key Changes Introduced by the Law:

• Abolition of the Commercial Code of Ukraine – to take effect six months after the Law’s publication
• Mandatory corporatisation of state enterprises – the process must begin within six months and be completed within three years
• Replacement of Soviet-era legal concepts of operational management rights with the usufruct concept – after the transition period
• Standardisation of atypical business entities (subsidiary, foreign, private enterprises, enterprises of civil societies, and consumer cooperatives) by recognizing them, in essence, limited liability companies
• Ban on the establishment of new state and municipal enterprises, as well as the above-listed atypical business entities.

The Law amends numerous legislative acts, including the Civil Code, the Land Code, the Commercial Procedural Code of Ukraine, the Bankruptcy Code of Ukraine, the Fundamentals of Ukrainian Health Legislation, the Law of Ukraine “On Local Self-Government in Ukraine”, and around 40 other laws.

The objective of the Law is to streamline the regulation of civil relations and eliminate the parallel existence of the Civil Code and the Commercial Code, which often conflicted and created legal uncertainty. Additionally, the Law aims to align Ukrainian legislation with EU law.

1. Abolition of the Commercial Code of Ukraine

The Commercial Code of Ukraine (CCU) will be abolished. Instead, the Civil Code of Ukraine (CCU) will serve as the primary regulatory framework in many areas, including:

• Legal status of business entities,
• Legal regime of their property,
• Regulation of contractual relations.

At the same time, some provisions of the CCU will be retained and transferred to other legislative acts. Specifically:

• The Law itself will include definitions of economic activity (commercial and non-commercial), business entities, provisions on enterprise associations (such as associations, consortiums, concerns and corporations), and rules on administrative-economic sanctions.
• Provisions on state and municipal unitary enterprises will be transferred to the Law of Ukraine “On the Management of State-Owned Property” and the Law of Ukraine “On Local Self-Government”.

2. Unification of Legal Forms of Enterprises

The Law prohibits the creation of new legal entities in the following legal forms:

• State enterprises,
• Municipal enterprises,
• Joint municipal enterprises,
• Private enterprises,
• Foreign enterprises,
• Subsidiary enterprises,
• Enterprises of civil societies (including religious organizations and trade unions),
• Consumer cooperative enterprises.

From the date the Law enters into force, private, foreign, subsidiary enterprises, enterprises of civil societies, and consumer cooperative enterprises will become subject to the Law of Ukraine “On Limited and Additional Liability Companies” if their legal relationships are not otherwise regulated by their charters or other laws.

If an owner does not decide to liquidate a relevant enterprise during the transition period, the provisions of the Law on LLCs will apply to such enterprises after the transition period ends. Additionally, any charter provisions that contradict the Law on LLCs will be deemed invalid.

3. Corporatization of State and Municipal Enterprises

All state and municipal unitary enterprises must be transformed into joint-stock companies (JSCs) or limited liability companies (LLCs).

Key procedures:

• For state enterprises: A decision on corporatization or liquidation must be made within six months from the Law’s effective date.
• For municipal enterprises: Local communities will independently determine the feasibility of corporatization based on their specific needs.

Creditors cannot demand early termination of contracts or acceleration of obligations of such enterprises. Besides their licenses and permits are automatically transferred to the successor entity.

From the date the Law enters into force, the creation of new state and municipal enterprises is prohibited. Within a three-year transition period, all state enterprises must be transformed into LLCs, JSCs, or non-commercial entities.

4. Transparent State Property Management

The Law introduces new mechanisms to enhance transparency in state property management:

• Transactions involving state-owned property (where the state owns more than 50% of shares) must be conducted via the Prozorro.Sale system, minimizing corruption risks.
• State enterprises must publish financial reports, ensuring transparency and accountability.
• Replacement of Soviet-era legal concepts:
  • The “right of economic management” (право господарського відання) and “right of operational management” (право оперативного управління) will be gradually replaced by the usufruct concept.
  • Usufruct allows enterprises to possess and use state assets (usus) and receive income (fructus) from them but prohibits their alienation (e.g., selling, transferring, contributing to statutory capital).
  • For instance, state-owned assets will be transferred to the National Bank, museums, military units, etc., under usufruct rights.

5. Law’s Entry into Force

• The Law takes effect on the day following its official publication, on 28 February 2025.
• Certain provisions will become effective in 6 months or in 3.5 years.
• Some provisions will remain in force for only 3 years, after which they will expire.