FOUNDER FUNCTIONS DIRECTOR WITHOUT SALARY
In the decision of the Administrative Court of Appeal of March 14, 2019, in case No. 857/1476/19, another complex and rather ambiguous question was considered: can a founder act as a director without a salary?
In fact, in the case under review, the founder of the company simultaneously performed the duties of its director, but for several years he was not charged and did not pay wages. In this case, the company’s charter provides that the executive body of the company is the director without charging and paying wages, concluding an employment contract and paying dividends to him at an increased amount of 10% compared to other participants.
The Court of Appeal, referring to Part 1 – 3 of Art. 65 of the HKU, considered it unreasonable to decide that the founder of the company, acting director, should work on the basis of an employment contract and should receive a salary as an employee. The findings of the court: the relationship arising from the performance of the founder of the functions of the director of the enterprise without the conclusion of an employment contract, are corporate, which means there is no obligation to enter into an employment contract, to accrue and pay wages. At the same time, the court referred to the decision of the Constitutional Court of Ukraine dated January 12, 2010 No. 1-rp / 2010, where it is stated that the participants in the company exercise corporate rights to participate in its management by making decisions on election (appointment), elimination, removal, recall The members of the executive body are also concerned with conferring their powers or depriving them of their authority to manage the company. Such decisions of the authorized body should be considered not within the framework of labor relations, but corporate relations that arise between the company and the persons entrusted with the authority to manage it. Is the appellate court right in this case? If we are talking about a situation with an LLC, then the question is ambiguous.
With a private enterprise – no problem. The right to independent management of it is given by h. 4 Art. 63 and 4 of Art. 128 HKU. The situation with the joint stock company is exactly the opposite – the Law of Ukraine “On Joint Stock Companies” of September 17, 2008 No. 514-VI. Provides that a contract is concluded with each member of the executive body of the joint stock company. There is no labor contract at all.
Neither the CCU with the CCU, nor the Law of Ukraine “On Limited Liability and Supplementary Liability Companies” dated 06.02.2018 No. 2275-VIII, do not provide for the company’s right to work without an executive body: sole (director) or collegial (directorate). Well, the very existence of such a body, as well as a person performing certain functions in managing the activities of an enterprise, in theory, requires the conclusion of an employment contract with him and the payment of salaries. Such a conclusion can be drawn from the provisions of Part 3 of Art. 24 of the Labor Code, according to which an employee cannot be allowed to work without entering into an employment contract. These findings give grounds for inspectors on the ground in cases where the founder performs director functions without being enrolled in the staff of the enterprise and paying wages to be regarded as a violation of labor legislation. As a result, you can pay a very serious fine in the thirty-fold amount of one salary (UAH 4173) on the basis of Part 2 of Art. 265 Labor Code (in 2019 – 125190 UAH.).
So we would not advise recklessly to rely on the considered decision of the court. Obviously, the controllers during the inspection will have complaints against the company if the founding director works without salary. And whether it will be possible to win the argument is a big question.
The only situation in which the regulatory authorities allow the owner to perform directorial functions without an employment contract is the temporary cessation of the enterprise’s activities. Thus, the Minsotspolitiki, in a letter dated 07.02.2012 No. 113/13 / 84-12, recommended that the charter provide for a form of participation of the owner in the management of an enterprise without entering into an employment contract (including for a period of time when the enterprise does not do business). way of rewarding the owner for such activities.
In turn, the tax authorities, in a letter dated 01.06.2017 No. 435/6 / 99-99-15-02-02-15 / IPC, give the nod to the appointment by the general meeting of participants of an LLC of a person responsible for drafting, signing and reporting ( provided that the enterprise is not in operation, full-time employees are not available, and information about the signatory person is included in the USR). Well, in the category 301.04.01, the tax authorities admitted that for the period of temporary cessation of the enterprise’s activities, the founder can perform the functions of a manager without receiving remuneration for it.
Author: Kristina Vorozhbitova