Ukraine is on the verge of fundamental changes in its legal framework that will directly affect thousands of state-owned and municipal enterprises. As of August 28, 2025, the Commercial Code will be a thing of the past, giving way to regulation under the Civil Code. This is not merely a formality, but a true tectonic shift that promises both new opportunities and serious challenges.
This large-scale reform, launched by the Law “On the Specifics of Regulating the Activities of Legal Entities of Certain Organizational and Legal Forms During the Transition Period and Associations of Legal Entities,” adopted in early 2025, sets a clear deadline for existing state-owned (SOE) and municipal enterprises (ME): by August 28, 2028, they must transform into new organizational forms or cease to exist.
Furthermore, for SOEs (with the exception of non-profit entities that are not bankrupt), decisions to “exit the system” must be made by their management within a short timeframe—from August 28, 2025, through the end of February 2026. A similar fate awaits municipal enterprises, where the final decision will rest with local authorities.
A Departure from the Norm: Legislative Changes and Their Initial Consequences
The repeal of the Commercial Code marks the end of an entire era for a number of specific organizational and legal forms that for decades served as the legal framework for the operation of state and municipal assets. These include, for example: state-owned commercial enterprises, state-owned enterprises, as well as their non-commercial counterparts.
The same applies to municipal commercial, non-commercial, and joint municipal enterprises. Once the new rules take effect, it will be impossible to register a new legal entity under any of these obsolete forms. This is a clear signal to all existing state-owned enterprises (SOEs) and municipal enterprises (MEs): the time has come to choose a new path—either transformation in accordance with the requirements of the Civil Code or liquidation.
Business Transformation: New Organizational Forms for State-Owned and Municipal Enterprises
The legislature not only declares the old regulations to be repealed but also proposes specific models for the future operations of state-owned and municipal enterprises. Thus, state-owned enterprises engaged in commercial activities, as well as municipal enterprises, will be subject to transformation into either joint-stock companies or limited liability companies. A key condition for such a transformation is that 100% of the shares or interests in the authorized capital of the newly formed companies must remain in state ownership.
State-owned non-commercial enterprises, in turn, will have the opportunity to transform into state-owned non-commercial companies, which will allow them to continue their operations under a new legal framework. Similar reorganization paths are also provided for municipal enterprises. They may be transformed into joint-stock companies (JSCs) or limited liability companies (LLCs), with 100% ownership belonging to the relevant local community. Another option for them is the creation of municipal non-profit companies. Joint municipal enterprises will also undergo a transformation process, during which the proportional participation of the relevant local communities in the authorized capital of the newly created entities will be preserved.
Property Aspects of the Reform: Asset Redistribution and New Rules of the Game
The reform inevitably touches upon one of the most sensitive aspects of any enterprise’s operations—property issues. Assets that were previously assigned to state-owned and municipal enterprises under the outdated right of “economic management” (with the exception of assets not subject to privatization) will be transferred to the authorized capital of the newly established joint-stock companies (JSCs) or limited liability companies (LLCs).
Those assets that, in accordance with the law, are not subject to privatization, or those held by enterprises under the right of “operational management,” will be provided to the successor legal entities solely for use, without the right to dispose of or transfer these assets to third parties. It is worth noting that three years after the law takes effect, enterprises will permanently lose the ability to retain property under the rights of economic management or operational management.
An integral part of the transformation process will be a mandatory inventory of all property. Based on the results of this inventory, a transfer deed must be drawn up, which is subject to approval by the authorized governing body. This is a complex and important stage that will help update data on the actual value and condition of state and municipal property.
Navigating the Transition Period: Choosing a Strategy and Overcoming Challenges
State-owned and municipal enterprises face a veritable marathon of corporate restructuring. This path will undoubtedly be difficult and will require significant legal, organizational, and financial resources. One of the key strategic decisions for the management of these entities will be choosing between converting to a limited liability company (LLC) or a joint-stock company (JSC).
An LLC is attractive due to its relatively simpler management structure and potentially lower operating costs. However, this form significantly limits opportunities to attract external investment, as it does not allow for the issuance of shares. Consequently, an LLC may be the optimal option for smaller enterprises.
In contrast, a joint-stock company opens significantly wider doors for raising capital and, as a rule, ensures a higher level of corporate transparency. At the same time, a joint-stock company involves a more complex corporate governance structure and potentially a greater administrative burden, making it a more attractive choice for large enterprises with significant assets and ambitious growth plans.
It should also be noted that the conversion process will inevitably affect the companies’ existing contractual relationships, the rights of their creditors, and, of course, the status of their workforces. However, there is a positive aspect: current legislation provides that existing permits, licenses, and certificates will remain valid for the successor legal entity, provided that it continues to comply with the conditions under which they were issued.
The Goal of the Reform and Potential Risks on the Path to European Integration
The repeal of the Commercial Code is not an end in itself. It is a decisive and consistent step toward simplifying Ukrainian legislation, eliminating the dualism in the legal regulation of commercial relations, and harmonizing it with European standards. For state-owned and municipal enterprises, this reform is a necessity of the times, requiring a proactive, measured, and strategically sound approach to restructuring their operations.
Although the reform opens up significant opportunities to improve the efficiency, transparency, and investment attractiveness of state-owned and municipal assets, the transition period also carries certain risks. These “pitfalls” could significantly complicate the process of implementing the planned changes. First and foremost, there is a risk of legal uncertainty and conflicts between the provisions of the revised Civil Code, the special law on regulatory specifics, and other regulatory acts. Such confusion could create opportunities for abuse, particularly when resolving complex property disputes or corporate governance issues.
Risks associated with the revaluation and inventory of property deserve special attention. These procedures are extremely complex and require a high degree of responsibility. There is a risk of undervaluing or, conversely, artificially overvaluing assets, which could result in significant financial losses for the state or the relevant local communities, as well as create a basis for potential corruption schemes. Changing property management regimes—the transition from archaic structures of economic administration or operational management to modern institutions of ownership or use—requires extreme diligence, transparency, and effective oversight.
The possibility of delays in the reorganization processes cannot be ruled out. The deadlines for transformation established by law (by August 28, 2028) may prove objectively insufficient for some particularly large or troubled enterprises with complex structures and significant debts. Bureaucratic obstacles, the lack of clear and understandable guidelines from government agencies, or simply insufficient funding for the reorganization processes could lead to a failure to meet the established deadlines.
The processes of reorganization and, in some cases, liquidation of enterprises will inevitably affect the workforce, which may lead to social tension. There is a real risk of staff reductions and changes to familiar working conditions, which, in turn, may lead to labor disputes and protest sentiment. Therefore, it is extremely important to ensure maximum social protection for employees during this challenging transition period.
Despite the legal requirement to maintain 100% state or municipal ownership in newly established joint-stock companies (JSCs) and limited liability companies (LLCs), there is a potential risk of losing control over strategic assets in the future. This could occur through additional share issuances (in the case of joint-stock companies) or through an increase in authorized capital funded by private investors, unless clear and effective safeguards against such scenarios are established at the legislative level.
Failure to comply with the established deadlines and transformation procedures may lead to serious legal consequences for the enterprises themselves and their managers. Possible sanctions include the compulsory termination of the enterprise’s operations by court order, the imposition of significant fines, and other liability measures.
The effectiveness of the reform depends largely on the readiness and professionalism of representatives of state and local government bodies. It is they who bear the responsibility for making key decisions regarding the reorganization or liquidation of enterprises, as well as for exercising proper oversight over these complex processes.
The success of this ambitious and critically important reform for the country depends on the synergy of many factors: the availability of clear and understandable regulatory guidelines, instructions, and clarifications; the diligent execution of assigned tasks at all levels; effective public and government oversight, proactive prevention of corruption risks, and, of course, strategic foresight on the part of everyone involved in this complex but critically necessary process. The future of the Ukrainian economy, its competitiveness, and its investment appeal depend to a large extent on how successfully and effectively this stage is navigated.
Author: Olga Tarasenko, Barrister
Source: https://zib.com.ua/ua/167175-kinec_epohi_gk_scho_chekae_na_derzhavni_ta_komunalni_pidprie.html