Inheritance of the share of a participant in a limited liability company under the new law

To date, the activities of companies with limited and additional responsibilities, consists of the norms of the Civil Code of Ukraine, the Economic Code of Ukraine and the Law of Ukraine "On Limited Liability Companies", which came into force on June 17, 2018. Before the entry into force of the above-mentioned Law, the activities of limited liability companies were regulated by the Law of Ukraine "On Business Associations".

The new Law of Ukraine "On Limited Liability Companies" significantly simplified the understanding of the conflicting positions in the activities of LLCs (ODL), since the norms of legislation that were in force until 17.06.2018 were quite contradictory, conflict-prone and obsolete, the lion's share of litigation took place exactly because of the contradictory nature of the provisions of the Law of Ukraine "On Business Associations" to the same Civil Code and part of the Law of Ukraine "On State Registration of Legal Entities, The obsolete norms caused contradictions in the legal positions of the courts, in some cases they were guided by outdated legislation, in others - by new ones.

Among other things, a vivid example of this was the question of what exactly is the object of corporate rights, inherited (share in the share capital, corporate rights in general, or the right to join the society). In particular, on June 17, 2013 there was no common opinion what exactly is inherited in LLC according to the Ukrainian legislation: the share or the right to participate in society, or both.

In accordance with Art. 1216 of the Civil Code of Ukraine under the term "inheritance" refers to the transfer of rights and obligations (inheritance) from the deceased individual (testator) to other persons (heirs). However, the concept of "corporate rights" is fixed in art. 167 of the Commercial Code of Ukraine and defined as the rights of a person whose share is determined in the authorized capital (property) of an economic organization, including the power to participate in the management of an economic organization, the receipt of a certain part of the profit (dividends) of the organization and assets in the event of liquidation of the latter in accordance with the law, as well as other powers provided for by law and by-laws.

In this case, according to p. 1 part 1 of Art. 1219 of the Civil Code of Ukraine, the inheritance does not include rights and duties that are inextricably linked with the person of the testator, including personal non-property rights. Part 1 of Art. 100 of the Civil Code of Ukraine determines the right to participate in society with a personal non-property right.

Given this aspect, it can be argued that corporate rights alone can not be an independent object of inheritance.

Part 5 of Art. 147 Civil Code of Ukraine did not provide for the primary right of the heir to join the society, but at the same time there could be a situation when the testator himself made an immediate decision to restrict the rights of his heirs by taking part in the approval of constituent documents of the company, complicating the procedure for inheritance of a share. At the same time, Art. 55 of the Law of Ukraine "On Business Associations" contained the opposite norm and established the pre-emptive right of the heirs to enter the society. If we proceed from the provisions of this article, then the heir got the right to join the society, and already after he used or did not use this right (or the society took advantage of his right to refuse to accept the heir as a new participant) and considered the issue of a share in the society that belonged to the deceased.

Economic courts in resolving disputes on the inheritance of corporate rights were guided by the decision of the Plenum of the Supreme Economic Court No. 4 of 25.02.2016 "On some issues of practice of resolving disputes arising from corporate legal relations." According to clauses 4.7 to 4.9 of the aforementioned Resolution of the Plenum: in case of death (liquidation) of an LLC participant (ODL), the successor (successor) inherits not the right to participate but the right to share in the authorized (share) capital. Part 5 of Article 147 of the Civil Code of Ukraine stipulates the right of LLC or ODL members to stipulate in the company's charter the need to obtain the consent of the remaining members of the company for the transfer of a share in the authorized capital to the heir of an individual or legal successor of a legal entity.

After obtaining a share in the authorized capital of heirs (successors), a preferential right to join this company, provided for by Article 55 of the Law of Ukraine "On Business Associations", however in this case it is not a question of automatic acquisition by such heirs of the right to participate in society. Only after the decision of the supreme body of the LLC (ODL) of a positive decision, the heir (successor) of the share in the authorized capital may become a participant in the corresponding company. In turn, the company may refuse to accept the heir (assignee) as a participant. In the event of the refusal of the successor (successor) to join the LLC (ODL) or the company's refusal to accept the assignee (heir), the share in the property belonging to the deceased participant, reorganized or liquidated to the person (the testator), the value of which is determined on the day of reorganization or liquidation (death) of the participant. In these cases, the amount of the authorized capital of the company is subject to reduction.

If the heir (successor) has refused to participate in the LLC (ODL) or was refused entry into the company, the relationship related to the payment to the heir (successor) of the value of the share of the company's property, by analogy, is applied Article 54 of the Law of Ukraine "On Business Associations".

Since 17.06.2018, the provisions of the Civil Code of Ukraine, the Economic Code of Ukraine and the Law of Ukraine "On Business Associations" have lost force in the parts regulating the activities of limited liability companies, and the provisions of the charter will remain in effect for another year in the part corresponding to the legislation on the state on the day the law comes into force. This caution will not be applied after the introduction of changes to the charter of the company.

As a result, the new Law of Ukraine "On Companies with Limited and Additional Liability" suggests an approach according to which, in the event of the death of a company participant, its share passes to its heir without the consent of the other participants in the company. The right of the participant's heir to join the LLC does not depend on the will of other participants, nor on the size of the share in the authorized capital. The law does not require the convening and holding of a general meeting for the adoption of an appropriate decision on the accession of the heir, nor does it require the introduction of changes to the charter of the LLC. For the state registration of the heir's entry, it is sufficient to present to the last state registrar an application for joining the LLC, the authenticity of the signature on which is certified by a notary, and evidence of the acquisition of the right to inheritance.

At the same time, the Law of Ukraine "On Limited Liability Companies" defines two ways of inheritance of a share depending on its size:

1. If the share of the deceased participant was less than 50%, and within a year from the date of expiration of the term for the acceptance of the inheritance, the heirs of such participant did not apply for membership in the company, the LLC may exclude the participant from the company. Considering that the term for accepting the inheritance as a general rule is 6 months, then in a year and 6 months after the death of the participant, other participants can exclude it if the heirs did not join OOO. Such a decision is made without taking into account the votes of the participant, is excluded. In fact, the status of a member of society is deprived of a person who has already died. In this case, heirs receive the market value of the share of the testator. Based on the decision of the general meeting of the LLC participants on the exclusion of the participant from the company, the state registrar shall record a change in the composition of the participants and a reduction in the amount of the authorized capital by the size of the corresponding share in the authorized capital.
2. If the share of the deceased participant in the authorized capital of the LLC was 50% or more, the LLC may take decisions related to the liquidation of the company, without taking into account the participant's votes. At the same time, it follows from the construction of the legal norm that there is no provision for time limits for such a decision and the need to wait for the entry or not to enter the heirs into an LLC. That is, the right to liquidation of other participants can be realized at any time after the death of the participant with a share of 50% or more.
   This norm for making decisions without taking into account the participant's votes is excluded, unlike other provisions of the Law, comes into force one year after the entry into force of the Law of Ukraine "On Limited Liability Companies", that is, from June 17, 2019.