A director is a key officer of a Ukrainian limited liability company (LLC, or TOV in Ukrainian), responsible for the company’s day-to-day management and for representing its interests before public authorities, banks, counterparties and other parties. The company’s director manages its current activities and makes decisions on operational matters.
The director is appointed and dismissed by the general meeting of the company’s participants (members). The company’s charter (articles of association) may establish additional requirements or procedures for appointing or dismissing the director.
This article examines the powers of a director of a Ukrainian LLC, how those powers may be restricted and which mechanisms can help the owner manage the associated risks.
What Can a Director Do Without a Power of Attorney or Members’ Consent?
A director is authorised to act on behalf of the company without a power of attorney and to represent its interests before organisations and institutions. Under Ukrainian law, a director cannot be entirely deprived of the statutory right to represent the company, which may expose the business to risks of abuse. However, the scope of the director’s representative authority may be restricted by clearly setting out the limitations in the company’s charter (and entering the relevant information in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organisations of Ukraine).
Can a Director’s Powers Be Restricted?
Establishing first- and second-signature rights for the company’s documents is an important aspect of organising the company’s operations and exercising control over its activities. These rights are governed by the company’s charter and other internal documents, such as regulations on the executive body or financial-control regulations.
The company’s charter is its principal governing document. In particular, it determines:
- who has first-signature authority (usually the director or general director);
- who has second-signature authority (this may be the chief accountant, chief financial officer or another person responsible for financial operations);
- the restrictions and conditions applicable to signature authority (for example, which documents or transactions require both signatures).
The charter may expressly specify:
- which documents may be signed using only the first signature;
- which documents require both signatures (for example, transactions involving substantial amounts or financial documents);
- how signature authority can be delegated to others (such as an acting director or other employees acting under a power of attorney).
Where the company has a collegial executive body (a management board or directorate), first- and second-signature powers may be regulated in greater detail by the regulations governing that body. Those regulations define the powers of all members of the executive body and the decision-making procedure.
First-signature authority generally belongs to the company’s director, while second-signature authority generally belongs to the chief accountant or another person responsible for financial matters. However, these powers may be expanded or modified under the charter and internal decisions.
First and Second Signatures in a Ukrainian LLC: Myth and Reality
First- and second-signature authority in a Ukrainian company is regulated by the company’s documents, in particular its charter and decisions of the general meeting of participants. First-signature authority generally belongs to the director, unless the charter or a decision of the general meeting provides otherwise. This authority enables the director to sign important documents and contracts on the company’s behalf without subsequent approval.
The first signature most commonly applies to the following documents:
- banking documents;
- contracts (legal transactions) with third parties;
- official submissions to public authorities;
- financial documents (balance sheets, reports and tax returns).
The company director acquires this authority automatically as the company’s executive body. The charter may also provide for first-signature authority to be granted to other persons (for example, members of the directorate where the company has a collegial executive body).
Second-signature authority generally belongs to the person responsible for the company’s financial or accounting matters. This is often the chief accountant or another person responsible for finance. The second signature is used as an additional control over financial operations and provides an additional layer of security when documents are signed. This authority may also be granted to other persons, such as an acting director, members of the directorate or heads of relevant departments.
The charter or other internal company documents may specify who holds second-signature authority and in which circumstances it must be used (for example, for financial documents or banking transactions).
If the company’s charter does not expressly prohibit the appointment of other authorised persons, second-signature authority is formalised solely through internal documents and recorded with the tax authorities. The procedure is as follows:
- Issuing an internal company order.
The director issues an order appointing an authorised person and granting that person authority to operate the account using a qualified electronic signature (QES; known in Ukraine as KEP).
- Filing Form No. 1-OPP: notifying the State Tax Service of Ukraine.
An application on Form No. 1-OPP is submitted to the tax authority at the LLC’s place of registration, providing information about the person responsible for maintaining accounting records or authorised to sign financial documents.
- Obtaining a QES and setting limits: activation with the bank.
The authorised person obtains their own qualified electronic signature (QES). The company’s internal order is submitted to the bank, after which the necessary settings are configured in its client–bank system.
The authorised person does not thereby become a company signatory for the purposes of the Unified State Register: they cannot sign contracts with third parties on the LLC’s behalf or sell the company’s property. Their authority operates exclusively within the banking system to control the movement of funds.
First and second signatures at a bank constitute a mechanism for additional control over the company’s financial operations. They enhance the reliability and transparency of processes by involving two people in signing important financial documents or payment instructions.
The person applying the first signature is usually the company’s director or another officer who manages the company. This person is authorised to sign most documents on behalf of the company, including agreements, contracts and bank payment instructions.
The first signature carries the greatest weight in making financial decisions.
The second signature generally belongs to the chief accountant, chief financial officer or another authorised person, who may be someone other than a company employee.
First and second signatures at a bank are instruments of dual control over the company’s financial operations, helping to ensure the security and transparency of its cash flows. Modern banking regulation by the National Bank of Ukraine has moved entirely away from the former Soviet concept of mandatory ‘first’ (director’s) and ‘second’ (accountant’s) signatures. Today, accounts are operated on the basis of a list of persons to whom the company itself grants signing rights and the combinations of their respective powers.
The principal rule of security and banking procedures is that making bank payments independently using only a ‘second signature’ is strictly prohibited and technically impossible. A person with that status cannot sign a payment instruction independently. For the control mechanism to work, the bank configures a joint-signature or dual-authorisation model involving what is known as the second signature.
Under this arrangement, authority is distributed as follows:
- First signature — belongs to the company’s director or another officer responsible for its operational management. This signature is mandatory for entering into agreements and contracts and initiating payments.
- Second signature — is generally granted to the chief financial officer, chief accountant or another authorised person (including an external controller or adviser who may not be employed by the company).
Consider how this works in practice. A strict rule is configured in the client–bank system: before any payment can leave the company, the bank requires two qualified electronic signatures (QES) to be applied. Neither signature has payment-authorising force on its own. The bank accepts the document for execution only once the director applies the first signature and the controller approves it with their ‘second first’ signature.
As regards granting second-signature authority to a non-resident: to enable a non-resident to control a company’s financial operations (accounts) in Ukraine, that person must be included in the list of persons authorised to operate the accounts, with second-signature authority.
The inclusion of that person on the list of authorised account operators may be based on a power of attorney or a resolution of the general meeting of participants.
Once the company has submitted those documents to the bank, the non-resident granted second-signature authority must undergo identification, meaning that they must visit a bank branch in Ukraine with their foreign passport.
If the non-resident is outside Ukraine and cannot enter the country for identification, identification may be carried out at a foreign branch of the bank where the company holds its account, provided that the bank has such a branch in the non-resident’s country of residence. After identification and submission of all required documents, the authorised person will be added to the company’s signature card and granted access to the client–bank system.
Which Control Mechanisms Work?
The advantages of a first- and second-signature system include:
- Security: the second signature adds an additional layer of security because important decisions are approved by another person rather than being made unilaterally.
- Control: the second signature enables financial oversight of large transactions and helps avoid risks of abuse or unauthorised use of funds.
Tools for Protecting the Business Owner
A company owner should put effective mechanisms in place to protect against risks arising from the director’s activities. Because a director may incur civil, disciplinary, administrative and criminal liability, the owner should minimise the risks of dishonest or inadequate management.
To prevent abuses, actions beyond the director’s authority or the diversion of assets, the owner (or founders) should consider the following measures:
- Restrictions in the charter: set financial thresholds. For example, the director may be prohibited from entering into transactions exceeding UAH 500,000 (or disposing of assets) without the written approval of the general meeting. The general meeting of participants may restrict the executive body’s (director’s) authority to enter into particular transactions. It is advisable for the charter to provide that certain transactions entered into by the director require the general meeting’s prior written consent. Such transactions may include obtaining loans, credit facilities or other borrowed funds, providing funds to third parties, and entering into or terminating contracts or settlement agreements above a specified threshold. It is also recommended that opening and closing bank accounts require prior approval by the general meeting of participants. A contract entered into by a director in excess of the powers set out in the charter may be declared invalid.
- Contract with the director: enter into a detailed employment contract. Specify clear KPIs, reporting procedures and the amounts of penalties or compensation for breach of contract.
- Corporate agreement: this instrument allows detailed decision-making procedures to be set out, certain actions by the director to be prohibited and mechanisms to protect against corporate disputes to be established.
- Delegation rather than concentration of authority: divide responsibilities between the director and the chief accountant. Prevent a situation in which one person both makes decisions independently and controls the finances.
- Regular audits: arrange independent audits to monitor financial statements and the condition of the company’s assets.
- Changing the authorised signatory: the director’s powers are confirmed by the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organisations of Ukraine. If concerns arise about the director’s conduct, promptly initiate their dismissal and the registration of a new authorised signatory.
A company director has broad powers to manage the business and represent its interests. At the same time, the role carries considerable responsibility and risks for both the director and the business owners.
An effective internal-control system, use of first- and second-signature arrangements, clearly defined charter restrictions and regular audits help minimise the risk of abuse and support secure company management.
In summary, correctly documenting a director’s authority and control mechanisms helps owners protect their business. Smartsolutions lawyers can assist with drafting and updating the company charter, documenting directors’ powers and implementing other measures to protect business owners.
FAQ
What powers does a Ukrainian LLC director have without a power of attorney?
A Ukrainian LLC director manages the company’s day-to-day affairs and represents its interests without a power of attorney. The director may enter into contracts, sign documents, represent the company before public authorities and counterparties, and make staffing and operational decisions. The scope of these powers is determined by Ukrainian law and the company’s charter.
Can a Ukrainian LLC director sign contracts without the members' approval?
Yes. A Ukrainian LLC director may independently enter into contracts on the company’s behalf within the scope of their authority. However, the law or the company’s charter may require prior approval for certain transactions. In particular, special rules apply to significant transactions, and the procedure for their approval is governed by Article 44 of the Law of Ukraine ‘On Limited and Additional Liability Companies’.
How can the owner of a Ukrainian LLC limit the director's powers?
Restrictions on a director’s authority should be set out in the company’s charter. For example, the charter may specify transactions requiring approval by the general meeting of participants, establish financial limits and regulate procedures for certain management decisions. It is important to recognise that internal restrictions cannot always be enforced against third parties.
What should an owner do if a Ukrainian LLC director exceeds their authority?
First, review the charter, the terms of the transaction and the circumstances in which it was concluded. Where the director has breached the established restrictions, the legal consequences depend, among other things, on whether the counterparty knew about those restrictions. Special rules on subsequent approval also apply to significant transactions. Where there are legal grounds, the company may claim compensation for losses incurred.
How can a business owner protect a Ukrainian company against abuse by its director?
To reduce the risks, clearly divide powers between the director and the general meeting of participants, establish approval procedures for important transactions, and ensure regular management and financial reporting. Additional tools include internal controls, scrutiny of related-party transactions and properly documented director liability.
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