Navigating LLC exits in Ukraine - the right of withdrawal and its practical implications

Mykola Stetsenko

Avellum, Kyiv

mstetsenko@avellum.com

Oleksandr Kozhukhar

Avellum, Kyiv

okozhukhar@avellum.com

Statutory thresholds: balancing minority protection and business continuity

The statutory right of exit (in Ukrainian: право на вихід) under the Law of Ukraine On Limited and Additional Liability Companies (the ‘LLC Law’) remains one of the most interesting instruments for clients trying to navigate corporate conflicts. It operates simultaneously as a minority protection tool and as a structural risk factor for majority investors concerned with business stability.

The LLC Law adopts a differentiated approach based on the size of the participant’s stake.

Participants holding less than 50 per cent of the charter capital enjoy an unconditional right to withdraw at any time. This mandatory rule reflects a clear policy choice. Minority investors who lack operational control should not be locked indefinitely into a deteriorating relationship or strategic disagreement. In contrast, participants holding 50 per cent or more may withdraw only with the consent of the other participants. The rationale is equally clear – to prevent controlling shareholders from exiting opportunistically and externalising the consequences of prior management decisions.

Two reservations deserve particular attention. First, if only one participant remains in the company, withdrawal is not possible. Ukrainian law does not permit an LLC to exist without at least one participant. Second, the charter may allow a 50 per cent (or greater) participant to withdraw without consent, but such a provision may be introduced or removed only by unanimous decision of all participants. This creates significant structuring flexibility, albeit at a high approval threshold.

In practice, this statutory exit architecture is frequently overlooked in transaction documentation, particularly in joint ventures. Parties may negotiate pre-emption rights, tag-along and drag-along clauses in shareholders’ agreements, yet fail to account for the mandatory withdrawal right of minority participants that is embedded in the law and in the charter of the LLC. This may result in a structural gap permitting a participant to withdraw under the relevant statutory provisions, rather than within the carefully negotiated contractual framework of a shareholders’ agreement.

Importantly, the statutory exit right is not a substitute for classical deadlock mechanisms. In a 50/50 structure, disagreements can quickly paralyse both the general meeting and day-to-day management of a company. The statutory withdrawal regime does not automatically resolve such conflicts. A well-drafted shareholders’ agreement therefore remains relevant, including express deadlock resolution tools – for example, roulette or other buy-sell mechanisms that provide a commercially workable exit without forcing liquidation of a viable business.

Shareholders’ agreements have been part of Ukrainian corporate law since 2017 and are now widely used in practice. Irrevocable powers of attorney strengthen this contractual setup, providing greater assurance regarding the relationships between LLC participants.

Mechanics of exit: speed, control and valuation risk

Procedurally, statutory withdrawal is deliberately streamlined. It becomes legally effective upon state registration of the relevant changes in the companies register – typically within 24 hours of submitting a notarised application. From that moment, all corporate rights of a withdrawing participant cease. However, speed comes at a price. Once the exit is registered, control over the valuation and settlement process shifts to the company, effectively, to the remaining participants and management. The LLC has 30 days to determine the value of the departing participant’s share, notify the former participant and provide supporting calculations. This structure creates some inherent risks. The exiting participant no longer has access to corporate governance tools but depends on the company’s internal assessment of value. Unsurprisingly, disputes over valuation are the most litigated aspect of LLC withdrawals.

The LLC Law requires valuation as of the day preceding submission of the withdrawal application. Earlier attempts to base payouts on historical book value have been rejected by the Supreme Court, which has confirmed that settlement must reflect fair market value. Notably, Ukrainian law applies a strictly proportional approach: there is no control premium for majority stakes and no minority discount for smaller shareholdings.

It is also important to flag an additional statutory flexibility that is frequently underestimated in practice. The company’s charter may establish a different timeframe, procedure, amount and method for settlements with a withdrawing participant, as well as a specific procedure for selecting the valuation expert. Such provisions may be included in, amended or removed from the charter only by a unanimous resolution of the general meeting adopted with the participation of all company participants. As such flexibility depends on the unanimous approval of all participants, it highlights the importance of advance structuring of the relevant exit arrangements.

Final remarks

For investors, the message is straightforward. The statutory exit regime is a powerful tool, but it does not operate in isolation. Its effectiveness depends on careful drafting of both the charter and the shareholders’ agreement, including a clearly defined valuation methodology, an independent and transparent expert selection process, and robust payment mechanics. When properly structured, the withdrawal framework becomes an integral component of the overall exit architecture in transaction documents, significantly reducing uncertainty and mitigating the risk of protracted disputes related to Ukrainian LLCs.