Digitisation of Corporate Shares and Shareholders’ Validation in Limited Liability and Additional Liability Companies

Abstract

This article examines the evolution of the registration of corporate shares held by participants in limited liability companies in Ukraine. It analyses historical methods of recording rights to shares — from including information in the articles of association and the memorandum of association, to maintaining the company’s internal register, up to the introduction of the Unified State Register of Legal Entities, Individual Entrepreneurs, and Public Organisations. Based on an analysis of legislation and academic sources, this paper examines two methods of accounting for LLC members’ equity interests and identifies the prerequisites for implementing the Central Securities Depository’s equity interest accounting system, as well as its advantages and disadvantages. The introduction in Ukraine of the ability to record shares in limited liability companies (LLCs) and joint-stock companies (JSCs) in the Central Securities Depository system is atypical for the traditional European model of depository accounting, which is focused on the recording of securities. An analysis of Regulation (EU) No. 909/2014, as well as materials from ESMA and ECSDA, did not reveal a unified mechanism within the EU acquis for the depositary accounting of corporate shares in companies that are not securities. Therefore, the Ukrainian model should be viewed as a specific approach to utilising depository infrastructure to mitigate the risks of unauthorised alterations to information about corporate shareholders and to strengthen the protection of corporate property. The article explains the procedure for transferring share records to the depository system, the functioning of participant accounts and escrow accounts, the conduct of electronic general meetings. The legal status of information from the share registration system that is deemed reliable and may be used in disputes with third parties is examined. A conflict is identified between the provisions of legislation on state registration and those on limited liability companies regarding the retention of information about participants in the Unified State Register after the transfer of share registration to the depository system. The advantages (digitisation, guaranteeing payments under agreements, electronic document management) and disadvantages (high cost of the Central Depository’s services) of the share registration system were analysed, as well as the current practice of its application by companies as of the present time. Further prospects for the development of the depository were outlined. It is proposed to introduce a legal framework for joint accounts in shares within the Central Securities Depository’s share registration system to ensure the exercise of co-owners’ rights.