Article

Founder as a Director in LLC without any type of agreement in Ukraine jurisdiction

A lot of founders of LLC in Ukraine are looking for the possibility to be a director of their own firm without salary and taxation pressure. It looks essential and logical, but not so easy according to Ukrainian law.

Here is no law in Ukraine that regulates this question straight forward. Only complex analyze of law, by-law legal acts and court practice can solve this case. But, in mentioned formula we have very dynamic components as court practice and by-law legal acts. They are changing all the time. So, while reading this article please take it in mind.

Law regulation

According to article 65 of Commercial code of Ukraine the founder can operate his company immediate or through elected body, depend on charter regulation. But, such provision is not regulated by tax code or social security law. So, a lot of lawyers and accountants are confused about such action.

If you become founder as a director in LLC without any type of agreement in Ukraine jurisdiction doing such action you are creating risk. So, you should make smart management of such risk. This risk can be managed by analyzing court practice and official interpretation by regulatory authorities.

By-law legal acts

In pursuant to official interpretation by Tax service of Ukraine, founder can be a director without salary if company doesn’t work actively and founder decided to work without salary. But, according to such interpretation founder cannot be a director without salary if company is profitable.

Also, there is consultation by Tax service № 301.04.01 which continue previous interpretation. Consultation № 301.04.01 says, that company Charter should have provision that operation of company is temporarily stopped.

Court practice

There were also court decisions from High Administrative court of Ukraine that founder as a director should earn salary and pay taxes within 2006-2015 (for example cases №К-6605/06, №К-32016/06). But, from 2016 court practice have changed. Courts of first and appeal instances began to resolve the case in other way. For instance, in case № 820/3159/18 court decided that founder can be director without salary even if company is profitable and have employees. There are also a lot of similar court decisions. There is no relevant court practice in this question by new High Court.

As a conclusion. There is no one opinion how to solve the issue: founder as a director in LLC without any type of agreement in Ukraine jurisdiction. But some possibility really exists.

For further details please contact J&L consulting and get proper legal and accountant service.

Prepared by Bogdan Yankiv, Lawyer in J&L Consulting.

bly@j-l.com.ua