Q: Our company wishes to set up production in Ukraine. Any sage legal advice?
A: These days many of the Ukrainian enterprises are privately owned and, therefore, the State Property Fund (and its notorious bureaucracy) is no longer an obstacle to acquiring stock in production facilities. Plus, industrial land is frequently allocated for production purposes. As a result you can buy shares of stock in a privately owned Ukrainian factory, enter into joint ventures or even own 100% of your production facilities by pursuing a greenfield project (via industrial land allocation and construction thereon).
However, all options require careful due diligence. It is a long and tedious process of research and analysis - involving the target company's legal structure, its property rights, any debts or liabilities, etc. Based on the information provided in the due diligence, the parties can agree on the fundamental issues suited to their transaction (percentages of ownership, valuation of respective contributions, etc.). Hopefully, negotiations will result in signed agreements (investment and purchase or joint venture), which must be duly registered with the Ukrainian authorities. Unfortunately, greenfield projects necessarily involve participation of government officials, since the local council of people's deputies is in charge of allocating land.
Depending on the region, they are known to either make or break greenfield projects. In any region, however, you should have a good working relationship with people in charge of land allocation. Last, but not least, you may explore toll manufacturing arrangements, otherwise known as production outsourcing, which involve assembly of foreign-made components in Ukraine. In addition to employing low-cost labor, toll manufacturing has excellent tax benefits. o
Alex Frishberg is an attorney with Frishberg & Partners, a Kyiv-based corporate law firm with a focus on M&A transactions. For more information, see www.frishberg.com.
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