Company’s Portion in Authorized Fund Does Not Confer Corporate Rights on It - the Commercial Cassation Court Within the Supreme Court

The company filed a claim to invalidate the decisions of the extraordinary general meeting of members of a superadded liability company (SLC). In support of the claim, the claimant company invoked the absence of a quorum at the general meeting and failure to notify it of convening a general meeting of SLC members. 

The claim was satisfied by the ruling of a commercial court which was upheld by the ruling of the appellate commercial court. The Commercial Cassation Court within the Supreme Court cancelled the rulings of the courts of previous instances and issued a new ruling rejecting the claim.

According to the courts of previous instances, when determining the total number of votes of SLC members who have the right to vote at the meeting of 29.10.2019, the votes attributable to the share belonging to the company itself were not taken into account.  The Commercial Cassation Court within the Supreme Court did not agree with this, taking into account the following.

Part three of Art. 25 of the Law of Ukraine "On Limited and Additional Liability Companies" states that the shares owned by the company are not taken into account when determining the voting results at the general meeting of members in the distribution of profits, as well as in the distribution of company property in case of its liquidation.

The company may acquire shares of participants without reducing its authorized fund only if it simultaneously forms reserve fund. In this case, the alienation of such a share must be carried out by the company within a year. Otherwise, the acquisition of a participant's share always creates an obligation of the company to reduce the authorized fund.

The panel of judges of the Commercial Cassation Court within the Supreme Court noted that the share of a member in the authorized fund of a company is not to be confused with a share that belongs to the company itself in this company. The share owned by the company does not endow it with corporate rights (Article 167 of the Commercial Code of Ukraine).

The company itself cannot be a member of the company, and having a share in it does not endow it with the rights and obligations of a member, since this contradicts the essence of corporate legal relations.

The company's ownership of a share in its authorized fund is limited both by its temporary nature (one year from the date of acquisition with the obligation to alienate it) and by the order of corporate governance (impossibility to vote at the general meeting of this company). Therefore, the votes attributable to the share owned by the company itself are not taken into account when determining the results of voting at the general meeting of members on any issues. 

The text of the resolution of the Commercial Cassation Court within the Supreme Court in case No. 904/1112/20 can be found at the following link - https://reyestr.court.gov.ua/Review/98812421.