Preemptive rights of a shareholder and a member of a limited liability company in the process of increasing the company’s authorized capital: a comparative legal aspect

The article is devoted to a comparative legal analysis of the pre-emptive rights of a shareholder in a joint-stock company and a participant in a limited liability company within the procedure for increasing a company’s charter (share) capital. The relevance of the topic is обусловed by the fact that the charter capital of both joint-stock companies (JSCs) and limited liability companies (LLCs) is a variable value and may be adjusted throughout the entire period of the company’s existence by a decision of the general meeting; however, the mechanisms for attracting additional financing and the guarantees for protecting the corporate positions of participants/shareholders in these organizational and legal forms differ significantly. The paper substantiates that the general codified provisions of civil legislation cover issues of pre-emptive rights only fragmentarily: the Civil Code of Ukraine does not establish a comprehensive regulation of pre-emptive rights in the context of increasing charter capital and, in fact, contains no provisions on the pre-emptive right of an LLC participant, whereas with regard to JSCs it refers to the pre-emptive right to acquire additionally issued shares, which requires further specification at the level of special legislation and local corporate acts. The study concludes that there are different levels of imperativeness and procedural guarantees for the exercise of pre-emptive rights. For JSCs, the pre-emptive right has the nature of a statutorily guaranteed right (without the need for additional fixation in the charter), and the possibility of waiving its exercise is allowed only by a special decision of the general meeting adopted with an exceptionally high quorum/voting threshold and subject to mandatory substantiation by the company’s governing bodies. It is established that for LLCs the approach is more flexible and, at the same time, debatable: the provision allowing the exclusion of a separate stage of making additional contributions by LLC participants raises questions as to the admissibility of limiting the pre-emptive right at the charter level and as to the appropriate voting majority required for such changes. The article highlights the instruments of an individual participant’s waiver of the exercise of the pre-emptive right and provides practical recommendations regarding the proper form of such waiver, as well as proposes the use of a shareholders’ (corporate) agreement to regulate a time-limited waiver of the pre-emptive right. Particular attention is paid to the functional purpose of the pre-emptive right as a mechanism for preventing the dilution of corporate participation and preserving control over the composition of participants (shareholders) through the principle of proportionality, which is common to both legal regimes. The article also addresses the issue of notifying holders of corporate rights about the possibility of exercising the pre-emptive right: for JSCs, the law establishes expanded obligations to inform shareholders and disclose key parameters of the issuance, whereas for LLCs such obligations are not a general rule and largely depend on charter regulation. In conclusion, the authors argue for the need for careful legislative and contractual regulation of the procedure for increasing charter capital, taking into account the balance of interests between the company and its participants (shareholders) and the differing “density” of legal guarantees in JSCs and LLCs.