• Artem Saprykin

    Partner, Head of Banking & Finance, Capital Markets Practice,


Address: 8 Dehtiarna Street, Kyiv, 04071, Ukraine

Tel: +380 44 337 7007

Fax: +380 44 337 7008

E-mail: info@esquires.ua

Web-site: www.esquires.ua

ESQUIRES is a modern law firm that has blended highly-qualified experts with magnificent experience of settlement of legal matters.

The firm was established in November 2016 by Oleksandr Shkelebey, Opanas Karlin, Artem Saprykin, and Viktoria Kovalchuk.

ESQUIRES is a team of experts in various legal fields with a vision for collaboration and development of the Ukrainian legal market. We understand that great performance and dedication is paramount to the success of our clients. Our lawyers are more than capable of taking care of your most important legal issues, whether in Ukraine or the EU.

We are fully committed to providing our clients with the best possible legal services, integrating our legal experience with a practical business attitude. By crafting strategic, focused and efficient decisions we are always able to come up with tailor-made solutions for our clients.

We provide full support with dispute resolution, business protection, white-collar defense and investigations, mergers and acquisitions, corporate and tax, ban­king and finance, capital markets and real estate. Our expertise enables us to provide legal assistance on a wide variety of matters, either structuring and supporting significant transactions or advising on the legal aspects of day-to-day ­ operations.

We are fully committed to assisting our clients to reach their corporate goals and to build a successful business.

Dormant Capital Markets. Focus on Private Investments

During 2017-2018 draft laws On Capital Markets and Regula­ted Markets and On Consolidation of State Regulation of Financial Services Markets Functions were broadly discussed and market participants were almost sure the new legislation would come into effect. Unfortunately, it didn’t. No important expected laws were adopted in 2018. Thus, Ukrainian sovereign bonds deals come to over 94% of total the trade on the market according to the National Stock and Securities Market Commission of volume of Ukraine’s 2018 report.

While Ukrainian capital markets are dormant, and the sovereign debt is the dominant instrument in public trading, we think it would be useful to pay attention to private investments options and structuring.

Today, investors should take into account not only common risks and disclaimers, but all the staff related to BEPS implementation, KYC and AML procedures, etc. So, even private investments should be structured properly and carefully. In our opinion, that could revitalize mutual investment funds as an investment tool provided by Law of Ukraine No. 5080-VI On Mutual Investment Institutions of 5 July 2012, as amended (MII Law).

While there are strict requirements to diversification of assets for public mutual investment funds, there are no such for private (venture) investment funds. One could even establish a fund for a single project if such a project is big enough. Mutual investment institutions provide some attractive options for legal and financial structuring as well as effective tax solutions. In this article we will consider a venture corporate investment fund which is a legal entity as an investments structuring tool.


There are two aspects or stages: financing of a fund itself and financing of a business. And both are easy to deal with. A fund is financed by purchase of its shares by investors (owners of business). And a business (project or projects) can be financed by capital contribution or loans. The MII Law (Clause 4 of Article 48) permits venture investment funds to provide loans to legal entities if such fund owns at least 10% of the registered capital of the respective legal entity. So, there could be a good combination of debt and equity financing.

One should take into account that the MII Law requires that only cash contributions are made by investors, shares of a fund cannot be exchanged by any assets upon initial placement of such shares. However, the minimum registered capital requirement is really low exceeding the amount of UAH 1.5 million.

Corporate Governance and Control

Generally, this is an asset management company, an independent licensed professional entity operating on the securities market, which manages the assets of an investment fund and represents it before third parties, including courts. But the MII Law provides investors with the necessary tools to establish proper corporate governance and control procedures in corporate investment funds as legal entities.

A supervisory board is a body protecting investors rights, supervising corporate investment fund’s activities and compliance by an asset management company with provisions of the fund’s regulations, investment declaration and asset management agreement. It is possible to determine broad powers of the supervisory board in the respective corporate investment fund’s articles of association and regulations. The MII Law does not limit the powers of the supervisory board. So, provision of preli­minary consents for certain investments or deals depending on their amount or other parameters, could be stipulated in articles of association and regulations.

Fund’s Profit and Income Distribution

There two ways of distributing profit (income): (i) dividends distribution; (ii) redemption of a fund’s shares.

Investors, as the fund’s shareholders, are entitled to dividends distribution subject to profit declared in the reporting year and the respective resolution of the general shareholders meeting. This kind of profit distribution may be exploited annually.

But there is also the option for an investor to receive cash when needed. If drafted properly, articles of association and regulations would permit investors to request an asset management company redeem the fund’s shares. Taking into consideration that a corporate investment fund’s assets are accounted on the principle of net asset value if there is a respective profit, the value of a single share will increase, resulting in a capital gain for an investor.

Tax Advantages

It is worth considering that a fund’s assets and profits are exempted from corporate income tax, including inte­rest payments such fund receives under loan agreements. There is no tax until a fund’s profits are distributed to investors. So, a corporate investment fund can be used as an effective accumulative and financing tool for capital flow between different projects.

Distributed profits (incomes) to in­vestors are subject to general taxation rules. This means that investors who are non-residents of Ukraine are able to benefit from the provisions of the respective double taxation treaties.


While Ukrainian capital markets are dormant, we believe there are still many potential profitable projects in Ukraine which require venture capital. And a venture corporate investment fund is one of the best solutions for structuring such projects. It is common for successful venture projects to do a public offering when the time comes. And it is always good to have a properly structured project by that time.