Development of the Concept of Shareholder Agreements in Ukraine

THIS spring the Supreme Court rejected a claim that the anti-fraud provisions of the Securities Exchange Act' impose a general fiduciary duty on those who control a corporation to act fairly toward minority interests.2 This decision, rejecting attempts to expand federal authority over internal corporate affairs through interpretation and thereby limiting the federal role to preventing fraud in securities transactions, may well increase the demands for major federal regulatory legislation governing the shareholdercorporation relationship. It is almost universally the opinion of academic commentators that state corporation codes do not impose sufficiently stringent controls on corporate management and are lax in protecting shareholders. Only federal intervention, it is said, can correct this sorry situation. This article will test the intellectual underpinnings of the conventional wisdom and of the rather venerable proposals calling for the federal regulation of the governance of corporations3 against an economic theory of corporate function and control. It will conclude both that state corporate legal systems are

Corporate law has embraced private ordering -- tailoring a firm’s corporate governance to meet its individual needs. Firms are increasingly adopting firm-specific governance through dual-class voting structures, forum selection provisions and tailored limitations on the duty of loyalty. Courts have accepted these provisions as consistent with the contractual theory of the firm, and statutes, in many cases, explicitly endorse their use. Commentators too support private ordering for its capacity to facilitate innovation and enhance efficiency. Private ordering typically occurs through firm-specific charter and bylaw provisions. VC-funded startups, however, frequently use an alternative tool – shareholder agreements. These agreements, which have largely escaped both judicial and academic scrutiny, highlight the extent to which rights and responsibilities in the corporation should be the subject of private contract. This Article offers the first broad-based analysis of shareholder agreements, detailing the scope of issues to which they are addressed and identifying the challenges that they pose for corporate governance. Focusing on the use of shareholder agreements by VC-funded startups, the Article recognizes the broad role played by shareholder agreements in structuring and coordinating investors’ economic rights, but it argues that using shareholder agreements for corporate governance, what this Article terms “stealth governance,” sacrifices critical corporate law values. These concerns are particularly problematic for the growing number of unicorns that have substantial economic impact but whose governance structures are shielded from the transparency and price discipline of the public capital markets. This Article argues that stealth governance is inappropriate for corporations and instead advocates a uniform structural approach to corporate law that would limit private ordering to the charter and bylaws. It further critiques the use of shareholder agreements to evade statutory limits on charter and bylaw provisions, arguing that, to the extent existing limits are undesirable, they should be the subject of legislative reform. A prior draft of this Article was posted with the working title of “Private Ordering and the Role of Shareholder Agreements.”

The article examines the transformational changes in legislation and corporate governance practices in Ukraine within the context of integration into the European legal framework. The primary directions of corporate law reform are analyzed, driven by the necessity to harmonize with international standards, particularly the principles of the Organisation for Economic Co-operation and Development (OECD) and the legal norms of the European Union (EU). The study primarily focuses on key legislative initiatives that have influenced the structure of corporate governance, including the adoption of the Law of Ukraine “On Limited Liability Companies” and amendments to the Law of Ukraine “On Joint-Stock Companies,” as well as legal mechanisms for protecting shareholders’ and investors’ rights. Special attention is given to issues related to increasing corporate transparency, enhancing corporate governance mechanisms, and establishing the institution of independent directors. The article provides a comparative analysis of Ukrainian corporate legislation with similar legal frameworks in EU member states, highlighting key challenges and opportunities for further development in this area. The significance of adapting the EU Shareholders’ Rights Directive, implementing corporate social responsibility principles, and incorporating ESG (Environmental, Social, and Governance) criteria into the activities of Ukrainian companies is emphasized. A separate section is dedicated to analyzing the role of judicial and arbitration practices in the corporate law reform process, including an overview of key court decisions that shape law enforcement practices in this field. The impact of judicial system reform on the effectiveness of corporate dispute resolution is examined, along with the application of international legal norms by Ukrainian courts. The article also examines the impact of digital transformation on corporate governance, specifically the adoption of electronic document management, the application of blockchain technologies in property rights registration, and the automation of shareholder voting procedures. It demonstrates how digitalization contributes to improving corporate governance efficiency and minimizing corruption risks. Keywords: corporate law, corporate governance, reform, European standards, international law, consolidation.

Shareholder agreements reflect a reassertion of contractualism in corporate law at a time when statutory regulation is more extensive than ever. Though not displacing the s140 statutory contract between members, shareholder agreements have a role to play both in direct contract between parties but also in setting reasonable expectations that may play a role in oppression actions or winding up on the just and equitable basis. As contracts they are prima facie enforceable but also subject to statutory overlays in the form of the laws of misleading and deceptive conduct and unconscionable conduct. Finally they are subject to some limitation in that the common law suggests that a company cannot in a shareholder agreement deprive itself of its power to alter its own constitution. There is also some doubt about the extent to which directors’ duties can be attenuated by shareholder agreement and whether shareholder disputes can be made the subject exclusively of commercial arbitration and kept out of the courts. This article is available in Bond Law Review: http://epublications.bond.edu.au/blr/vol20/iss2/1 SHAREHOLDERS AGREEMENTS AND SHAREHOLDERS’ REMEDIES CONTRACT VERSUS STATUTE?

Firm-specific private ordering has flourished in the twenty-first century. Public companies are seeing more and more governance contracting in traditional venues such as the bylaws and charter, as well as in less conventional places like shareholder agreements and dual-class-like contracts. Decisions legitimizing private ordering in the corporate setting contain strong contractarian language and rely heavily on contract—and not corporate—principles to justify their holdings. In addition, recent statutory amendments have chipped away at traditionally mandatory features of the corporation, thereby reinforcing the contractual view of the corporate form and fueling the private ordering movement. All told, the current trajectory of corporate law appears to privilege freedom of contract and the contractarian theory above other principles and theories of the firm.
 Noticeably absent from recent corporate jurisprudence, however, is any meaningful discussion of the rationale for, and consequences of, intertwining contract and corporate law in such an intimate way. Engaging in this discussion is critical, as the expansion of corporate contractual freedom and the corresponding judicial embrace of contractarian principals have important implications for corporate law and the role of the corporation in the business entity ecosystem. This Article discusses some of the impacts to the corporate form, corporate theory, and the corporation’s role in society resulting from the prioritization of contractual freedom.

The default rules of corporate law make shareholders’ control rights a function of their voting power. Whether a director is elected or a merger is approved depends on how shareholders vote. Yet, in private corporations, shareholders routinely alter their rights by contract. This phenomenon of shareholder agreements—contracts among the owners of a firm—has received far less attention than it deserves, mainly because detailed data about the actual contents of shareholder agreements has been lacking. Private companies disclose little, and shareholder agreements are thought to play a trivial or nonexistent role in public companies. I show that this is false—15% of corporations that go public in recent years do so subject to a shareholder agreement. With this dataset in hand, I show the dramatic extent to which these shareholders redefine their control rights by contract. Shareholders restrict the sale of shares and waive aspects of the duty of loyalty. Above all, however, shareholders use their agreements to bargain with each other over votes for directors, and to bargain with the corporation itself for other control rights, such as vetoes over major corporate actions. In essence, while statutory corporate law makes control rights a function of voting power, shareholder agreements make control rights a function of contract instead, separating voting and control. Studying this phenomenon raises new questions of doctrine, theory, and empirics that go to foundational issues in corporate law. Is it desirable to let shareholders redesign corporate control rights wholesale by contract? What should be the law that governs their contracts when they do so? I provide a novel account of shareholder agreements’ use in public firms, before offering preliminary views on their welfare effects, implications for corporate theory, and on their governing law, which remains strikingly underdeveloped.

Private companies are one of the main pillars of the national economy in sustainable national development. In carrying out business activities, conflicts often occur between the shareholders of a company. The governance of a company is regulated in Law Number 40 of 2007. The reality of the business world is that often the articles of association in the deed of establishment of a Limited Liability Company as a place to accommodate the clauses agreed to by the shareholders cannot accommodate clauses that are specific to the objectives of the shareholders. shares to manage the running of the Limited Liability Company business they established. This research uses empirical juridical methods. The data used uses secondary data taken as primary data from the collection of laws and regulations relating to the object under study, and secondary and tertiary data from official documents, journals and the internet. Data collection was carried out by means of one-sided questions and answers which was carried out systematically and based on the research objectives. From the results of this research, data was obtained that Limited Liability Companies located in the city of Batam do not pay attention to company governance procedures as regulated in the articles of association in the company's Deed of Establishment, thus providing opportunities for misuse of this trust. Progress in business governance is not well anticipated, which creates gaps in increasing conflict between shareholders in the company. The choice of litigation resolution, which takes a long time and is expensive, is an obstacle to resolving this conflict. The Shareholders' Agreement Letter as a mitigation for future conflict management for the shareholders of a Limited Liability Company should be used from the moment the shareholder's self-binding agreement was made when establishing the company. A shareholder agreement is a legal document that regulates the relationship between the company's shareholders, which concerns their interests or the interests of the Company. Explicitly in UUPT no. 40 of 2007, Article 4 states that this law, the Company's articles of association and other statutory provisions, Article 1320 concerning the validity of agreements, Article 1338 of the Civil Code, binding agreements as law for the founders, applies to the Limited Liability Companies. A shareholder agreement letter is an agreement made in addition to the Articles of Association made by the parties.

“A well-drawn stockholders' agreement entered into contemporaneously with the formation of a corporation is (generally acknowledged to be) the most effective means of protecting the minority shareholder”. In authorizing such agreements courts have come to recognize the needs of shareholders in close corporations who want to protect themselves from each other and from hostile invaders. Nowadays, shareholders experience little difficulty in enforcing voting or pooling agreements. But courts feel much more uncomfortable about the implications of shareholder agreements defining the business strategy of the corporation and interfering with the core function of the directors. Both, under German and US states' laws there is uncertainty about the shareholders' freedom of contract and the ground rules governing a contractual relationship between shareholders. This contribution will examine the common intellectual origins of shareholders' agreements under German and US laws. It will demonstrate where German and US corporate laws began to move apart and it will analyze to what extent one legal system might instruct the other.

Publicly traded partnerships, or master limited partnerships as they are sometimes called, are hybrid entities. Attempting to achieve the perfect structure for organizing economic activity, new statutes added limited liability to entities that enjoy flow-through taxation. However, because of parallel refinements by federal regulators involving taxation and amendments by state legislatures involving fiduciary duties, a strange genetic mutation flourished: the publicly traded partnership (PTP). The PTP organized as a Delaware limited partnership combines limited liability and tax advantages with elimination of fiduciary duties and free transferability of shares. In what might be the pinnacle of separation of ownership and control, unitholders purchase limited partnership units on a public exchange representing equity interests in an entity whose managers have no fiduciary duties toward the purchasers or their investment. Furthermore, new proposals seek to expand the universe of firms that may choose this structure, creating interesting, or alarming, questions about the future of this once tiny but now growing population of firms. Delaware is home to these PTPs, which benefit from the stated policy of both the legislature and the courts to encourage freedom of contract. Though one reason to allow these hybrid entities full freedom of contract is that they are generally formed by familiar parties with the full ability to negotiate the full relationship, this policy seems to wear thin when the limited partnership, or limited liability company, becomes a publicly held entity. In that case, large numbers of investors are investing in the PTP and taking the duties and rights in the limited partnership agreement without negotiation. The ability to monitor management becomes nonexistent. PTP units are freely traded among strangers. The resulting PTP is indistinguishable from a corporation, but shareholders in a corporation are still owed fiduciary duties by the board of directors and officers. Though the number of PTPs has historically been relatively small, incremental changes in federal tax regulations have opened a path for companies that effectively corporations to remain taxed as partnerships even though they are publicly traded. Hence, a new rise in the number of PTPs that have all the advantages of various entities, such as freely transferable shares, centralized management, perpetual life, and flow-through taxation, but none of the disadvantages, such as fiduciary duties and personal liability. This chapter argues that just as Delaware has remained the market leader in corporate law, it is now becoming a quite distinct producer of limited partnership law. And, just as Delaware corporate law has adjusted over time to support efforts of management to reduce liability for fiduciary duties, Delaware limited partnership law has leapt out in front of even its own corporate law to create an entity whose public owners have little of the rights we associate with owners. Combined with federal tax developments that have liberalized the boundaries of which entities may become publicly traded limited partnerships, the future of these entities becomes very interesting. Finally, this chapter argues that Delaware should recognize a class of limited partnerships, PTPs, for which new rules (or merely historical rules) should apply. Just as closely-held corporations require a different analytical lens than publicly held corporations, PTPs would benefit from a more nuanced contractarian response.

This article deals with theoretical and legal approaches and peculiarities of the regulation of corporate contract under the laws of France and USA. One of the factors that promoted the promulgation of the shareholders agreement was the participation of Anglo-American investors in French societies, which were more accustomed to contractual relations then to the use of rigidly fixed forms of joint-stock companies. Despite the fact that one of the aims of such agreements was an attempt to get rid of excessive publicright control, such contracts could never contradict the mandatory requirements of the law and the provisions of the company’s charter. In the United States legislative embodiment of the right of shareholders to enter into various types of agreements is carried out by laws regulating activities, the procedure of the establishment and management of Business Corporations. The content of a shareholders agreement and the right to participate in such agreement is regulated by the legal regime of corporation. The agreement between the members of close corporation de facto may change the provisions of corporation’s charter relating to corporate governance and profit sharing. All types of shareholders agreements, which could be concluded by the members of Business Corporation, are considered in the present article. State law that regulates contractual relations does not apply to shareholders agreements despite the legal doctrine view that corporations are of a contractual nature. 
 The comparative analysis of the jurisprudence, legal doctrine and provisions of US and French legislation allows us to conclude that in the USA, unlike France, shareholders agreements are regulated by Corporate Law, not by the provisions of the Contract Law as it takes place in France.

In this paper we provide a simple and general framework that explains the nature of groups, their corporate governance problems and their ownership structures as the result of the double nature of the controlling shareholder in the group as both shareholder and stakeholder of the subsidiary. We use this framework to conduct an economic and empirical analysis that explores the limitations of regulation and shareholders’ agreements to deal with this dual nature of the parent. Our analysis is able to explain the extreme ownership structures prevalent across groups as solution of last resort to unresolved corporate governance problems when regulation is inefficient and transaction costs limit the use of contracts to provide shared control. We go on to test these ideas conducting an empirical study that explains groups ownership structures and allows us to derive important policy implications. First, it exposes the structural limitations that corporate law encounters to contain the corporate governance problems of groups. Second, it calls for an acknowledgement of the crucial role of shareholders agreements in corporate governance. Shareholder agreements offer the best alternative to protect parent and subsidiary from mutual opportunism, while preserving the incentives to cooperate. Guarantying the enforceability of these contracts offers jurisdictions the most efficient way forward to reduce expropriation in corporate groups.

The article discusses the prerequisites for establishing comprehensive legal regulation of the shareholder agreement in the corporate law of Ukraine. It argues that the shareholder agreement is an essential tool for regulating corporate relations and ensuring effective interaction among corporation members. The article emphasizes that the shareholder agreement is the main manifestation of discretion in the corporate law of Ukraine, and outlines its advantages over corporation charter, including greater flexibility, adaptability to unique circumstances, and the ability to establish optimal methods of responsibility for the parties. The article also highlights the advantages of using compensation as a mechanism for ensuring "satisfaction" in the event of a violation of the shareholder agreement, while also noting that parties can choose alternative mechanisms of responsibility that best suit their interests. It pays particular attention to the interaction between the shareholder agreement and legislative regulation and local corporate acts, such as the charter and bylaws of corporations. The article argues that the provisions of the shareholder agreement are limited by the imperative provisions of corporate legislation and the rules of the charter, which is the main local corporate act of the company. It recommends changes to corporate legislation to clarify the distinction between the provisions of the charter and the shareholder agreement, particularly in relation to the preemptive right of members of LLCs and ALLs, to avoid conflicts between the two. The argument is made that changes to corporate legislation are necessary in order to improve certain provisions. One such improvement would be to clarify the provision regarding the nullity of the shareholder agreement, which should include an obligation to vote in accordance with the instructions of the company's management bodies. Additionally, the range of subjects to which this provision applies should be expanded to include the company's subsidiaries and any other company bodies. It is also important to prohibit the inclusion of provisions in shareholder agreements that are aimed at harming the rights and interests of other members or shareholders of the corporation, as well as the interests of the company itself.

The sudden growth of limited liability company (LLC) legislation in the past ten years has been accompanied by a corresponding amount of scholarship dedicated to the logistics, concerns, and implications of the limited liability company. Most legal scholarship has examined the potential liability and the scope of the fiduciary duty of the members of an LLC. At issue in this Note is not the extent to which the members of an LLC owe duties to it or to each other but rather the extent to which the LLC is independent of its members. LLC legislation and case law expressly serve the principles of freedom of contract. Preserving the freedom of members to contract with one another as to the operation of the LLC, however, can occur at the expense of the LLC. The law recognizes the LLC as an entity that has protected rights, at least for some purposes. This Note examines whether this status implies that, when executing agreements, the members of an LLC do not bind the LLC itself. It argues that courts should consider the separate entity characteristics of an LLC when considering whether to enforce against it an agreement to which it is not a party. Part I introduces two recent holdings that advance opposite conclusions as to whether an LLC should be bound by an arbitration and choice-of-forum clause in its operating agreement when it was not itself a signatory to the agreement. It then examines what effect the policies favoring arbitration have on the enforceability of arbitration clauses and argues that, notwithstanding freedom-of-contract principles, an arbitration clause should not be enforced against a nonparty, even where that nonparty is an LLC. Part II suggests that comparing the LLC to the corporation might be more appropriate than comparing it to the partnership, and applies citizenship and internal-affairs-doctrine analyses to the LLC to demonstrate that the LLC can be considered a separate entity whose interests should be balanced against freedom-of-contract principles. Part III proposes that while providing for freedom of contract in LLC agreements might attract would-be members to form an LLC in a state that exalts such freedom in its LLC legislation, a state court system's refusal to respect the independence of an LLC might counter any such lure. The Note concludes that freedom of contract does not necessarily justify enforcing a contract against an LLC when it is not a party to the contract and that enforcement of such a contract could harm both the LLC and the state enforcing the contract.

The sudden growth of limited liability company (LLC) legislation in the past ten years has been accompanied by a corresponding amount of scholarship dedicated to the logistics, concerns, and implications of the limited liability company. Most legal scholarship has examined the potential liability and the scope of the fiduciary duty of the members of an LLC. At issue in this Note is not the extent to which the members of an LLC owe duties to it or to each other but rather the extent to which the LLC is independent of its members. LLC legislation and case law expressly serve the principles of freedom of contract. Preserving the freedom of members to contract with one another as to the operation of the LLC, however, can occur at the expense of the LLC. The law recognizes the LLC as an entity that has protected rights, at least for some purposes. This Note examines whether this status implies that, when executing agreements, the members of an LLC do not bind the LLC itself. It argues that courts should consider the separate entity characteristics of an LLC when considering whether to enforce against it an agreement to which it is not a party. Part I introduces two recent holdings that advance opposite conclusions as to whether an LLC should be bound by an arbitration and choice-of-forum clause in its operating agreement when it was not itself a signatory to the agreement. It then examines what effect the policies favoring arbitration have on the enforceability of arbitration clauses and argues that, notwithstanding freedom-of-contract principles, an arbitration clause should not be enforced against a nonparty, even where that nonparty is an LLC. Part II suggests that comparing the LLC to the corporation might be more appropriate than comparing it to the partnership, and applies citizenship and internal-affairs-doctrine analyses to the LLC to demonstrate that the LLC can be considered a separate entity whose interests should be balanced against freedom-of-contract principles. Part III proposes that while providing for freedom of contract in LLC agreements might attract would-be members to form an LLC in a state that exalts such freedom in its LLC legislation, a state court system's refusal to respect the independence of an LLC might counter any such lure. The Note concludes that freedom of contract does not necessarily justify enforcing a contract against an LLC when it is not a party to the contract and that enforcement of such a contract could harm both the LLC and the state enforcing the contract.

US corporate law and, in particular, Delaware law, which leaves ample room to freedom of contract, has been one of the reasons for the successful creation and financing of startups in Silicon Valley. We analyze the Italian attempt to modernize company law in order to promote startup creation within the wider movement of company law simplification and modernization around Europe. In Italy a suitable corporate law statute for early stage startups was missing. Italy is a dual system jurisdiction. The SPA (public company type) has at least part of the required financial flexibility, but it is still burdened by European rules on legal capital and inflexible rules concerning management and controls. The SRL (private company type) offered a lot of leeway as to the management of the company, but left no room for freedom of contract with regard to financing, since it was not imagined as a vehicle for investors. In response to competitive pressure, economic aspirations and social changes, and to general demands from European institutions for some forms of facilitation of firm creation and venture capital, the Italian lawmaker has slowly transformed the SRL and created what is basically a new type of company (the SME SRL), which lies in between the two original types but whose borders are not fully clear. The ambiguous character of this company form makes it a problematic model for venture-funded startups. On the basis of our analysis, we argue that Italian corporate law is under competitive pressure from Delaware rather than from inter-European competition on corporate charters, and that path-dependance and remaining limits to freedom of contract burden Italian company law and prevent economic growth. We make some policy suggestions, among which the introduction of a counter-Satzungsstrenge principle for private companies.