How to appoint and remove officers in a Ukranian subsidiary

Ukrainian legislation does not employ the term "corporate officers". Instead, the corporate governance structure consists of:

• a supervisory board (not mandatory; except for certain specific cases, e.g., public joint-stock companies or private joint-stock companies with more than ten non-affiliated shareholders) exercising control over the executive body, and
• an executive body (being an individual director or a collective board of directors) managing the operational activity.

Given the functions of corporate officers in other jurisdictions, we assume that the closest analogue is members of the executive body.

The company must have at least one director who will act as the company's head officer (CEO). The appointment of other directors is not obligatory but is quite popular in Ukraine (for instance, CFOs are often appointed as the board members).

Generally, there are no requirements to the company's directors – either a Ukrainian national or a foreigner can be appointed as the CEO. The directors of the limited liability companies (the most popular organizational form in Ukraine) have an opportunity to be appointed based on a labour or a civil law agreement. Work permits are not mandatory if the appointed foreign nationals do not intend to stay in Ukraine permanently.

In addition, companies themselves were recently allowed to act as directors, but only for special DIIA City resident company (a special corporate and tax regime created for IT companies).

Specific requirements are set for the companies exercising activity in particular spheres, e.g., spheres requiring licensing. As a rule, such conditions relate to the education of candidates, work experience, good faith, and compliance requirements.

In most cases, the appointment of the board members lies within the competence of the supreme management body of the company – the shareholders' meeting. However, some companies transfer such powers to the supervisory board.

In any case, the corporate appointment requires convening and holding the responsible body's meeting and issuing the special resolution. If the appointment concerns the individual executive body or head of the board of directors, such an appointment is to be registered with the Ukrainian company register. The respective resolution must be wet-ink signed in Ukraine and certified by a Ukrainian notary.

Following these procedures, the relations with the appointed director are formalized from the labour or contract law standpoint – via concluding a labour agreement and issuing labour documents (if appointed as an employee) or concluding a civil law agreement on providing directorship services (if acting as a contractor).

In certain situations, the directors responsible for specific spheres (e.g., HR or financial matters) are not members of the executive body. In this case such directors are appointed by the company's CEO unless otherwise stipulated in the Articles of Association. Hence, no resolution of the management bodies is necessary.

Generally, if the director is employed with the company, s/he has the right to resign freely provided that the resignation application is submitted at least two weeks before a planned resignation date. The free resignation is nevertheless blocked if a fixed-termed labour agreement is concluded. Termination of this agreement at the employee's initiative is possible only under certain circumstances (illness, disability etc.).

Similar rules regarding prior notifications apply for the cases of establishing contractual relations with the director (as opposed to labour relations) – such termination conditions are usually agreed upon by the parties in the civil law agreement. Moreover, the agreement may also specify sanctions for the early termination.

There is one additional stumbling block for the free resignation. The person may inform of the resignation and terminate labour/contractual relations. Still, the formal shareholders' resolution (or the resolution of the supervisory board) will be necessary to complete the termination of the director's powers and remove the person from the Ukrainian company register. In this aspect, the resignation is thus entirely dependent on the will of the shareholder/supervisory board.

The process for the officer's removal is much like the appointment - it requires a resolution of the shareholders or the supervisory board (if relevant) and registration with the Ukrainian company register if the removed director acted as a sole director or head of the board of directors.

The company cannot act without the director; thus, the existing sole director cannot be removed without simultaneous appointment of the new director.

In Ukraine, the director may claim damages only in the case of civil law relations– Ukrainian labour law is relatively rigid and does not provide an opportunity to regulate this matter in the labour agreement.

Under the general freedom of contract rule, the parties to the civil law agreement can agree on additional provisions, including regarding the damages in the case of the director's early removal.

However, the civil law agreements with directors are quite new in Ukraine and the practice of their conclusion and termination has not been established yet.