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Wednesday, June 18, 2014

Commercial law in Ukraine

Ukrainian commercial law
Ukrainian business is governed by commercia and civil code
By Jessica Stidd

On January 1, 2004 the legislative system in Ukraine underwent some major changes due to the adoption of new Commercial Code and new Civil Code. How did the changes affect the Ukrainian legislation? What are the main downsides of the new codes and what other changes are required to allow more foreign companies to enter the Ukrainian market?

Commercial and civil code

The Commercial Code provides rules and regulations related to commercial activity in compliance with the Constitution of Ukraine. The Commercial Code provides definitions of business entities and it regulates all issues pertaining to business activities, foreign commerce included. The Civil Code provides the definition of legal entities and rules governing ownership, contracts, intellectual property rights, obligations, torts and inheritance law. The major change introduced by the Civil Code is the recognition of new types of business contracts with regard to activities such as franchising, factoring, renting and inheriting.

Conflicting provisions and other problems with commercial law in Ukraine

Having two codes regulating similar areas of business activity means that both codes need to be consistent with one another and unambiguous in provided definitions and rules. That, however, is not the case of Ukrainian Commercial and Civil Code. Unfortunately, it is not uncommon for one of the codes to provide regulations, which are in conflict with other regulations in the same code or with provisions included in the other code. For example, the Civil Code provides conflicting rules regarding the time, when a contract comes into effect and it recognizes some corporate entities, which are not recognized in the Commercial Code. 

On top of that, there are numerous cases when the provisions of both Commercial and Civil Code are in conflict with subordinate laws or the regulations provided in Codes cannot be implemented due to gaps in subordinate laws. This situation is particularly difficult for entrepreneurs operating on the Ukrainian market – the legal system in its current shape is unable to regulate some of the business relationships and activities, not providing enough legal protection for entities participating in these activities. 

Many gaps in Ukrainian legislation give the courts and Ukrainian officials means to interpret the law however they want and facilitate corruption. In a competitive situation the business entities with stronger legal representation have an upper hand over smaller companies with less experience in the field. In result, the current laws in Ukraine do not support the development of free market and make it more difficult for foreign companies to do business on the territory of Ukraine.

To sum up, both Commercial and Civil Codes require important changes, which would clarify and unify the regulations provided by the Codes, however these changes will not happen within a day. Foreign entities and local entrepreneurs, who want to conduct businesses in Ukraine are strongly encouraged to find an experienced legal advisor, who will supervise their business activities at every stage of the process, from registering the company in Ukraine to taxation and solving legal disputes with competitors and partners in business. An excellent understanding of Ukrainian law is mandatory to use the gaps in legislation to the client’s advantage, not against him. 

About the author: Jessica Stidd is a writer and editor with a wide variety of experience, including writing for websites internationally and editing books on many different subjects and in a variety of formats.  It is very fulfilling for her to edit the writings of people whose first language is not English and need help with their written English, and to help them have their voice shine through to a wider audience.  It inspires Jessica greatly to write about topics that are read all over the world that promote peace and a greater understanding of different cultures. 

Image license: Open Clips/Pixabay; PD