On August 14, 2021, new rules on relations with directors of limited and additional liability companies ("LLCs" and "ALCs") came into force in Ukraine, introduced by the Law of Ukraine "On Stimulating the Development of Digital Economy in Ukraine" (better known as the "Diya City Law").

Among other novelties. Diya City Law introduced changes to paragraph 12 Article 39 of the Law of Ukraine "On Limited and Additional Liability Companies" allowing optional conclusion of:

  • labour agreements;
  • labour contracts as a special form of the labour agreement envisaging additional grounds for its termination;
  • civil law agreement;

with the chairman and all members of the executive body of the ALCs and LLCs.

Before that, civil law agreements were not allowed for such officials at all, and a labour contract could be concluded only with the sole executive body (e.g. director) or the chairman of the collegial executive body (e.g. general director). Thus, the investors gained more freedom to choose the most suitable form of the agreement (contract) with the officials of ALCs and LLCs.

Thus, among the advantages of the new regulation are the following:

  • Possibility to conclude specifically a labour contract with members of the collegial executive body, in which it is allowed to provide for the fixed term of the contract and additional grounds for its termination (under paragraph 8 of part 1 of Article 36 of the Labour Code of Ukraine);
  • Possibility to conclude a civil law agreement with the sole executive body or the chairman and members of the collegial executive body (Board of Directors) without the need to formalize the employment relations with such persons;
  • Possibility to formalize only corporate relations with foreign directors based on a civil law agreement without formalizing employment relations and prior obtaining a work permit for such corporate officials in Ukraine.

Still, this option is suitable only for foreigners staying in Ukraine for no more than 90 days within a 180-day period (for citizens of countries enjoying a visa-free regime for entry to Ukraine). If a foreigner needs a visa to enter or stays in Ukraine permanently, it will be necessary to obtain a work permit, a D-04 type visa and a temporary residence permit in Ukraine with the formalization of employment, as before. 

Considering the above, we recommend companies to analyse the possibility and advantages of concluding civil law agreements with directors, as well as entering into labour contracts when employment is necessary (e.g., for temporary residence permit).

In case of a decision to formalize civil relations with directors – to formalize the dismissal and conclude a civil law agreement, to make appropriate amendments to the structure of corporate governance and company documents, as applicable (formalization of specifically labour agreements/contracts with directors is often provided for in the charters and regulations on the executive body).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.