Types of agricultural enterprises in Ukraine

Entities of different legal forms are constantly being created and operating in the Ukraine’s agricultural sector; the law defines general as well as specific conditions for their creation. In the recent years, the share of these entities has been stable and amounts to about 4% of all legal entities.

Number of entities by type of economic activity

In total

Including

Enterprises

Individual entrepreneurs

2016

Total in Ukraine

1 865 631

100%

306 470

100%

1 559 161

100%

Agriculture, forestry and fisheries

74 620	

4,00%

44 998

14,68%

29 622

1,9%

2015

Total in Ukraine

1 932 161

100% 

343 561

100%

 1 630 878

100%

Agriculture, forestry and fisheries

79 284

4,02%

46 744

13,61%

32 540

2,00%

2014

Total in Ukraine

1 932 325

100%

341 165

100%

1 591 160

100%

Agriculture, forestry and fisheries

75 660

3,92%

46 012

13,49%

29 648

1,86%

Source: State Statistics Service of Ukraine 

In the agricultural sector of Ukraine, four main groups of agricultural producers can be singled out:

1. Household producers (44.9% of total vol ume of agricultural production). 

2. Private enterprises. 

3. Collective ownership enterprises. 

4. Companies. 

1. Household producers which also include individual entrepreneurs do not have the status of legal entities and they produce agricultural products for their own needs, as well as for sale. These subjects specialize on commercial growing of vegetables and others, more of niche crops, which tend to be difficult to grow on industrial scale due to high labor-intensity.  

2. Private enterprises in agriculture are represented by farms and other private agricultural enterprises.

Farms can be created only by Ukrainian citizens and their operations should be based on farmer’s family’s labor, although it is allowed to hire employees. The land may belong to a farmer as by property rights, as well as by a lease. The area of farms can vary from several hectares to five-ten thousand hectares, in which case a farm is virtually a normal medium-sized agribusiness. More than 60% of farms have area from 100 to 2000 hectares.

Private agricultural enterprises – are legal entities which operate on the basis of private property and can be founded by Ukrainian citizens, as well as foreign citizens, stateless persons and other legal entities. The general rules of conducting business activities of the Civil Code and Commercial Code of Ukraine apply to them.

3. Collective ownership enterprises, various forms of cooperatives.

Cooperatives in Ukraine can be of different types. The most common ones are the production cooperatives and the service cooperatives.

A production cooperative can be created exclusively by individuals for joint production or another economic activity for profit on the basis of their compulsory participation by providing labor.

A service cooperative can be created by individuals and/or legal entities for provision services, primarily to its own members, but also to others to support their business operations.

4. Companies can be national, foreign, as well as national with foreign investments. In the agricultural sector companies are the second most common legal form after the farms. They are represented mainly through the companies with limited liability and joint-stock companies.

A company with limited liability – is a company established on the basis of an agreement between legal entities and/or individuals by means of combining their assets and business activities for purpose of profit.

A company with limited liability must have a statutory fund, which is divided into shares in amounts previously specified in the founding documents – a statute. The law does not specify the minimum number of participants for such company; however it does specify the maximum, which can’t be more than one hundred participants. The upper and lower limits of statutory fund are not predefined by the law.

The special feature of this legal form is the fact that the shareholders of a company are liable only by the amount of their shares in the statutory capital. A participant has a right to sell or withdraw from his/her share (or a part of it) in the statutory capital.

Legal registration of a company with limited liability takes 24 hours; all other procedures like for example opening a bank account and registration with fiscal authorities take around 4-5 days working days. These procedures are free of charge.

Joint-stock companies (JSC). The statutory capital of a JSC is divided into a certain number of shares with equal nominal value, and the shareholders are liable for the company’s obligations only to the extent of the shares they own. Both individuals and legal entities can be founders of a JSC. The law states that statutory capital of a JSC can’t be less the equivalent of 1250 minimum wages, according to official minimal wage valid at the time of registration of the JSC.

There are two types of JSCs: open JSCs and closed JSCs. In first case, company’s shares can be distributed freely through an open subscription as bought on a stock exchange. Whereas in the second case, shares can be distributed only among the founders and cannot be bought and sold on a stock exchange. A closed JSC can be reorganized into an open JSC by means of amending its charter and statutory documents.

Legal registration of a JSC takes also 24 hours, but all other procedures can take about 2-3 months, including procedures like registration of its shares with the National Commission on Exchanges and Securities, registration with the fiscal authorities, opening of a bank account(s) etc.

The first three organizational forms are more common to small and medium-sized agricultural producers and are rarely used to attract FDIs. Limited liability companies and joint-stock companies are more common and vary in size, and are better suited to attract investments. The biggest agribusinesses usually prefer the organizational structure of a ‘holding’ and publicly offer their shares on international stock exchanges. 

Number of agricultural producers by their legal and organizational form

2014

2015

2016

Total 

46 199

100%

45 379

100% 

47 697

100% 

Companies

7 750

16,8%

7 721

17%

8 700

18,2%

Private enterprises

3 772

8,2%

3 627

8%

3 752

7,9%

Collective ownership   enterprises

674

1,4%

596

1,3%

738

1,5%

Farms

33 084

71,6%

32 203

71,2%

32 682

70,6%

State enterprises

228

0,5%

241

0,5%

222

0,5%

Other

691

1,5%

891

2%

603

1,3%

Foreign companies also have the right to register a representation in Ukraine. Now, there are about 4375 such entities in Ukraine. Depending on the aim, a representation can be of two types: a commercial (permanent) one and a non-commercial (temporary) one.

A commercial representation according to the Ukrainian law is such that conducts complete or partial businesses activities of non-resident in Ukraine and which revenue is taxed accordingly.

A non-commercial (temporary) representation conducts only preparatory or support activities for the non-resident company, also provides consultancy services. A non-commercial representation does not pay the revenue tax.

Business activity through a representation has its advantage, like: direct control over the activities of representation and its funding, use of the company’s brand without a license agreement, an ability to employ foreigners without having to update their visa annually. A registration will take about a month, and there is obligatory fee payment of $2500 USD.

There are other ways for foreigner and foreign companies to enter the Ukrainian agricultural sector, for example through an agency agreement or a cooperation agreement.