Approval of contracts in companies

The beginning of a new year is a good time to sort out corporate documentation. Particular attention should be paid to minutes of general meetings of shareholders approving contracts (transactions).

Approval of contracts in joint-stock companies (JSC)

The law provides for mandatory procedures for approval of major and related-party transactions and for disclosure of such information. Whether a particular contract is deemed to be a major or related-party transaction is determined on the basis of the law and company charters.

In general, such transactions are approved before they are signed although they may also be subject to: 

• preliminary approval – the general meeting may determine beforehand the major transactions (maximum total value) that may be concluded in a year; 
• subsequent approval –  the general meeting may approve after its conclusion a transaction that was not approved before its signing.

Approval of contracts in limited liability companies (LLC)

The law sets out that it is up to LLC to determine which contracts are subject to approval by the general meeting and not to require disclosure of such contracts. In other words, whether a particular contract should be approved by the general meeting is determined by the company charter. Such contracts are often in practice:

• Contracts with a price exceeding the amount set by the charter; 
• Certain types of contracts (for example, loan, property sale, etc.).

Adverse consequences for company directors upon unduly contract signing

Company officers (directors, etc.) are liable for damages caused to their company:

• Actions performed with abuse of authority;
• Actions performed in breach of the procedure for preliminary approval/other procedure for adoption of decisions as set out by the charter, etc.;
• Actions performed in compliance with the procedure for preliminary approval, but upon submission of inaccurate information to obtain such approval;
• Inaction when certain actions are required;
• Other wrongful acts.

The value of lost property, any additional cost incurred by the company, and lost profit are among the aforementioned damages payable by officers.

How may we help?

• We review foundation documents (charter, etc.);
• We draw up and amend foundation documents, internal documents;
• We prepare draft minutes of general meeting of shareholders for contract approval.

Our specialists have numerous years of experience in corporate, contract and labor law as well as in litigation. They have gained such extensive experience working with various types of companies in Ukraine (LLC, JSC, etc.), and they would be pleased to advise you and prepare all the documents necessary for your company.

We would be pleased to share our experience and recommendations, so please feel free to contact us anytime.