Acquisitions of businesses and companies are usually carried out through the acquisition of the shares of a joint-stock company (JSC) or through the purchase of participatory interests of a limited liability company (LLC). Very often large transactions in relation to privately owned businesses are done at the level of holding vehicles outside of Ukraine to ensure clear-cut application of English law and smooth transfer of title to the shares. Asset acquisitions are rare as they are technically burdensome, time-consuming and are subject to VAT.

Ukrainian law provides for two types of mergers: by absorption, where one of the merging entities survives and the other disappears; or by consolidation, where all merging entities merge into one newly established entity. Except for internal corporate restructuring, merger techniques are rarely used in Ukraine for the purpose of acquisition of companies and businesses.

Merger by absorption: Under Ukrainian legislation, a merger by means of absorption entails a legal reorganization of the merging entity. Such merger leads to dissolution of the merging company as a legal entity, while the company into which the merging company transfers its assets and liabilities continues to exist as the legal successor to the merging company. The merger is deemed complete from the moment the merging company executes a "transfer balance sheet," effecting the transfer of its assets and liabilities to the surviving company, and upon the removal of the merging company from the state register.

Merger by consolidation: Consolidation is implemented through the formation of a new legal entity, either a JSC or an LLC, and through two or more merging entities transferring all of their assets and liabilities to the newly formed entity in exchange of ownership rights in the new entity. As a rule, the allocation of shares (participatory interest) in the new company should be proportionate to the number (amount) of shares (participatory interests) held by the shareholders (participants) of the merging entities and taking into account the ratio between the amounts of the registered capitals of the merging entities and the amount of the registered capital of the new company.

M&A deals in relation to state-owned assets are made through a privatization process, which underwent significant changes in 2018. The State Property Fund (SPF) and its regional branches carry out the privatization process. Due to the Russian invasion of Ukraine in February 2022 the privatization process was put on hold. However, the SPF has indicated that it will resume the sale of state-owned assets in 2024.

The process varies depending on whether an asset qualifies as a "large privatization asset" or a "small privatization asset." The default scenario for large privatization assets is an open-bid auction sale, the type of which should be determined by the SPF. The main features of the acquisition of a mid to large-size state-owned enterprise may be summarized as follows:

• A potential buyer of a state-owned enterprise must meet certain statutory criteria, including domiciliation criteria.
• Due diligence, in respect of a state-owned enterprise put up for sale, is usually very limited in time.
• The SPF is not receptive to heavy negotiations of the relevant transactional documentation and tends to use a standard Ukraine-specific acquisition agreement.
• An acquisition agreement usually contains investment obligations of the buyer; such obligations may not necessarily require direct cash investments, but almost always oblige the buyer to maintain certain production and employment levels of the state-owned target.

The most common vehicle for conducting business activities in Ukraine is an LLC. Private and public JSCs are also very widespread and are the targets for private M&A transactions. All of these companies embody the concept of limited liability for investors.

The legal nature of an LLC is similar to that of a German Gesellschaft mit beschränkter Haftung (GmbH) or a French Société à responsabilité limitée (SARL), while a JSC is, in broad terms, closer to a German Aktiengesellschaft (AG) or a French Société Anonyme (SA). LLCs' participants and JSCs' shareholders are liable for the company's commitments only to the extent of their contributions to its registered capital (reflected as a share or a participatory interest). In 2018, the legislation on LLCs in Ukraine was significantly improved by the adoption of the special law regulating the operation of these companies. Now participants of LLC have significantly more flexibility to tailor rules governing the operation of their companies.

Currently, no minimum capitalization is required to establish an LLC, however, it is implied that it should be of a positive value. The share capital of JSCs should not be less than approximately UAH 1,340,000 (equivalent of approximately EUR 33,500). There are two ways to increase the registered capital of an LLC or a JSC, namely: (1) using its undistributed profit; or (2) by means of additional contributions of participants (shareholders) into the capital. At the same time, an LLC may also increase its registered capital by means of additional contributions of third parties. Unlike LLCs, JSCs may issue shares of various classes, such as ordinary and preferred shares.

In both LLCs and JSCs each participant (shareholder) has a number of votes proportionate to the nominal value of its participatory interest (number of shares) owned by such participant (shareholder).

There are no quorum requirements for an LLC's meetings of participants. The key decisions of an LLC requiring a unanimous vote from all the participants should be made regarding the determination of procedure for entry into related party transactions, valuation of in-kind contributions into the capital of LLC, establishment of the requirement to procure consent of other participants for pledge over participatory interests, as well as determination of procedures for implementation of the participants' preemptive rights and increase of registered capital by means of additional contributions different from those stipulated in the law. The key instances when the three-quarters of the total number of votes is required include amendments to the articles of association of the LLC (save for the cases where a higher threshold is established by law or articles) and changes to the amount of the registered capital. An LLC's articles may provide for differing thresholds for adopting its decisions, except for the ones that require unanimous vote.

The quorum for shareholders' meetings of JSCs is 50%+1 of the total votes, except where a higher threshold applies. Most decisions are considered adopted when the majority of shareholders who attend the meetings and who hold an eligible class of shares vote in favor of the decision. However, some decisions require three-quarters of those shareholders to vote in favor of the decision (e.g. amendments to the articles of association of the JSC and changes to the amount of the registered capital), and some require 95% of those shareholders to vote in favor (e.g. amending the articles of a private JSC with 100 and more shareholders to allow the shareholders' meeting to decide upon the matters falling within the competence of the supervisory board). A JSC's articles may provide for higher thresholds for adopting its decisions, subject to a few exceptions (including: (i) decisions to terminate JSC's officials; (ii) decisions to file a claim for damages to the officials; and (iii) decisions to file a claim for violating the procedure of approving significant transactions).

Unlike a JSC's shareholder, the participant of an LLC will have a preemptive right to acquire the participatory interest of the selling participant, unless otherwise established by the LLC's articles or a shareholders' agreement to which the remaining participant is a party.

Prior to 2018, most public JSCs operated on the basis of essentially the same corporate rules as private JSCs. Before 2018, public JSCs only existed on paper in that it was enough for a public JSC to comply with a simple formality to register its shares with a local stock exchange. However, now to be able to have the status of a public JSC its shares should be publicly offered or the JSC should ensure that its shares are listed and it complies with the minimum stock exchange listing requirements including, among other things, the free float, revenue and profit requirements.

No, there are no restrictions on shareholder numbers.

By law, most of the share acquisition deals will involve a licensed broker acting on behalf of one of the parties. The transfer of shares is done based on instructions of both parties submitted to the depository institution of the seller and the depository institution of the buyer.

Unlike shares, acquisition of participatory interests in an LLC does not require involvement of a securities broker. However, the transfer of the participatory interest would be made based on the act of transfer and acceptance certified by a notary to be subsequently submitted for registration of the transfer with the state register.

The transfer of title in an LLC's participatory interest is subject to parties' agreement. The transfer of title in a JSC's shares is dependent upon updating the records in the Ukrainian depositary system. However, it is common, in M&A transactions in respect of Ukrainian targets, that the parties opt for the laws of England and Wales as the governing law and agree to an arbitration forum located outside of Ukraine, save where there is no nexus to a foreign jurisdiction.

An asset acquisition may be structured as either the acquisition of the "total gross assets" of the target, or the acquisition of only a portion of the target's assets.

Acquisition of the "total gross assets" of the target: A sale of the target company's total gross assets is a sale of a business as a going concern, including all of its rights and obligations.

Acquisition of selected assets of the target: In this type of asset sale, the buyer is free to select the assets it is willing to acquire (including accounting receivables and the contractual rights of the target); save where the acquired assets are subject to any encumbrance, the buyer will only be liable for those obligations of the target company that it expressly assumes subject to approval or the respective creditor. Hence, a sale of assets is preferable in situations where the target has significant liabilities that the buyer does not wish to assume, provided such sale does not lead to bankruptcy of the company, in which case the officers and/or participants (shareholders) of the company may be found liable.

Where the business is subject to licensing, an asset acquisition becomes less attractive, as all the licenses and permits issued to the target are not automatically transferrable. Where a transaction involves a transfer of the target's rights to certain types of assets (e.g., an interest in land), an analysis is required to determine a correct transfer regime which might differ depending on the country of the buyer's origin, specific type of the asset, etc..

An important tax consideration here is the applicability of VAT (20%) to the asset deal to be paid by the seller, which increases the transaction value.