Business Inheritance in Ukraine
Most people sooner or later face a question of inheritance. The fact of close person’s death is stressful for most people, and, therefore, the question of inheritance registration can be quite difficult to solve. In addition, if real estate or movable property inheritance issues are more or less regulated by the Civil Code of Ukraine, the issue of business inheritance is a very difficult one, even for a lawyer, not only for an ordinary citizen. Therefore, in the article we will discuss some questions of inheritance of business, assets of an enterprise.
Despite the rather voluminous legal framework, business inheritance issues, assets or shares always cause controversy in business. In most cases, the inheritance procedure may lead to the suspension of enterprise activities, loss of assets or deliberate understatement of their value because such people have a finger in the pie. The main reason for such action is the fact that between the time of the testator’s death and the accession to the heir have to be at least 6 months according to the law, and if between the heirs there is a dispute on the inheritance, the determination of the heir can take years. Moreover, all this time the business share or assets are in “limbo” state. In addition, difficulties arise after inheritance, for example, regarding the issue of the heir’s right for participation in the activities of a business entity, the size of the share to be paid and / or order of changes in the constituent documents. A person who inherits the right to participate in enterprise management usually faces deliberate disorganization of a company by the designated management and business partners if the business is established and operated in the form of a company.
Therefore, the first advice would be that business owners, especially if the business is successful, it is necessary to think in advance about the solving of the situation after their death, in order to protect the rights of heirs and further preservation of business if it is a matter of life. And such actions of the testator must concern two aspects:
1. The relevant amendments to the constituent documents of the company;
2. The drafting up of wills in relation to quality of business and business assets.
Standards of statutory instruments that protect the rights of the business heirs may be the position of the enterprise charter about unconditional inclusion of the heir to the participants / shareholders of the enterprise. This rule should always be spelled out, because, according to the norms of Ukrainian legislation, the question of taking the heirs to the participants / shareholders of the company is the discretionary powers of other participants / shareholders of the company, that is they determine whether to accept the heirs as the participants / shareholders instead of a dead person or not.
Testamentation about business and business assets involves, above all, a clear definition / description of the business or business assets and, secondly, the definition of the testator executor. In accordance with article 1290 of the Civil Code of Ukraine the executor is obliged to take measures for inherited property protection (a), notify heirs, recipients’ refuses, creditors about the opening of the inheritance (b) to require the debtor of the testator to fulfill their obligations (c) manage inheritance (g) ensure the obtainment of the share of inheritance by each heir (d). It is clear from the above that the executor is a person can manage the enterprise (business) and make sure that the business asset is not destroyed, stolen or to the asset did not lose its value who during the period of acceptance of the inheritance which is at least 6 months. It would be reasonable to appoint as testamentary executor a with relevant experience in the business or a qualified lawyer.
Even more reasonable is to conclude an agreement in advance with the potential executor of the will, because it would be prudent to provide adequate remuneration to the executor of the will for his actions to preserve the business assets.
But few business owners take measures mentioned above (making changes to the charter, testamentу and appoints executor), so we consider a common situation. In most cases, the heir calls to the notary to get an inheritance after the death of the testator. A notary has to open a hereditary case and to send formal requests to government agencies and private organizations. Theoretically, after the detection of any property of the testator by a notary, he must take measures to preserve it till the heir will become its owner. However, Ukrainian notaries are busy with their own affairs and almost never, without additional charges from the heirs, take measures to preserve the property. Thus, before getting a certificate for inheritance rights the heir does not have any legal grounds for the implementation of property management and enterprise activities.
Taking into account that 6 months is quite a long period of time during which competitors can worsen the condition of the enterprise, and that relevant management or deceased business partners can “hide” its assets and / or accumulate debts for the obligations of the heir, as a rule, the heir does not wait 6 months. S(he) tries to take any actions, as the heir does not want to find his stocks or shares in the authorized capital of the company practically devalued, and thriving business in debt and bankrupt. In this case, the most effective solution, as a rule, is when the heir considers the seizure of the office, the removal of title or other documents of the enterprise, the dismissal of employees, etc., at the same time such actions subject him to the criminal law of Ukraine.
We should also note that Ukrainian laws contain a ban for inheritance of the right to participate in economic society, but it is noted that the heirs have the preferential right of entry into the community. That is, after the death of the testator it is impossible to become a participant of the enterprise automatically based on the inherited share in the enterprise. But it is possible to acquire such a status by identifying the desire to participate in the activities of the company and obtaining the consent of the company in general meeting or meeting of other members of society. In this case, as it was mentioned earlier, everything will depend on the content of the enterprise statute, where the basic principles of inheritance of shares / shares can be determined. The founding documents of the legal entity, in particular, can regulate in details the for heir’s entry into the business. In the absence of regulations the successor will need to solve the problem only through litigation.
According to the general practice in most cases other participants of business entities forbid heirs to join the society instead of a dead person. In this case, the heir may receive his share in the authorized capital of the company in cash or natural form. The size of the ownership interest in the company should be equal to the size of the share in the authorized capital of the company, which owned by the testator at the date of his death, and the size of the authorized capital of the company is subjected to further corresponding reduction.
Taking into account mentioned above facts, in this case the heir must pay attention to the content of constituent documents, establish the references to the order of succession and only then determine the further course of action. But the greatest attention should be paid by the owner of the business assets because the most contentious issues can be resolved only when the owner of the business is alive by presenting statutes which will protect the rights of heirs, and by drawing up an adequate will with qualified executor. Therefore, it would be prudent for all concerned parties to work with specialized experts for the settlement of corporate disputes, lawyers and notaries, which will significantly reduce the risks with business inheritance.
Author: Kydalov Igor
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From the article finally I realized that the inheritance of the business is not the same as the inheritance of immovable or movable property. And the owner of the business is better to think it over and decide how to keep the business for the heir. Based on this article, it is better still to seek the assistance of a lawyer.