Law No.698-XII of 1991 on entrepreneurship

Article 1. Entrepreneurship in Ukraine Entrepreneurship is an independent, systematic activity, exercised at one’s own risk, directed at production of goods, performance of works or providing services with the purpose of profit reception, which is fulfilled natural persons and legal entities, registered as subjects of entrepreneurial activity in accordance with the procedure, established by the legislation. Creation (establishment) of a subject of entrepreneurial activity – legal entity, as well as enjoyment of corporative rights is not deemed entrepreneurial activity, except cases, envisaged by the legislation. (Article 1 is in the wording of the Law of Ukraine N 1481-III, February.22, 2000)

Article 2. Subjects of Entrepreneurial Activity Subjects of entrepreneurial activity (entrepreneurs) may be: citizens of Ukraine or other countries or persons without citizenship, not limited by the law in their legal capacity and capability; (paragraph two of part one of Article 2 is as amended by the Law of Ukraine N 1807-III, June 8, 2000) legal entities of all forms of ownership, established by the law of Ukraine “On Property”; associations of legal entities, executing activity in Ukraine under terms of an agreement on distribution of products. (part one of Article 2 is supplemented with paragraph four according to the Law of Ukraine N 1807-III, June 8, 2000) To those legal entities and citizens, for which entrepreneurship is not the basic type of activity, this Law shall be applied only in that part of their activity, which is entrepreneurial by its character. The name of a subject of entrepreneurial activity - legal entity should contain information on its legal and organizational form and name. The name of a subject of entrepreneurial activity - legal entity shall not include full or contracted names of bodies of state power, bodies of local government and derivatives of these names, as well as names, identical to the names of other subject of entrepreneurial activity - legal entity or association of citizens, entered into the relevant registers. (Article 2 is supplemented with part three according to the Law of Ukraine N 2356-III, April 5, 2001, due to this parts three-five shall be shifted correspondingly to parts four-six) Such categories of citizens as military men, officers of such bodies as Public Prosecutor Office, court, national security, internal affairs, state arbitration, state notary’s office, as well as bodies of state power and administration, called to perform inspection of enterprises’ activity, are prohibited to exercise entrepreneurial activity. Persons not allowed by court to conduct certain activities, may not be registered as entrepreneurs with a right to exercise a corresponding type of activity, prior to expiry of the term, established by the court. Persons, having uncancelled conviction for robberies, bribery, and other mercenary crimes, may not be registered as entrepreneurs, act as co-founders of an enterprise or take administrative positions or positions, related to material responsibility at entrepreneurial partnerships and their unions (associations).

Article 3. Freedom of Entrepreneurial Activity Entrepreneurs may unrestrictedly make decisions or individually perform any type of activity, which is not in conflict with the acting legislation. Peculiarities of regulation of certain types of entrepreneurship shall be established by Ukrainian legislation. The Verkhovna Rada of Ukraine shall establish the list of activities, where entrepreneurship may not be exercised because of high requirements to the safety of works and necessity of centralization of control functions. (part three of Article 3 is as amended by the Law of Ukraine N 304/95-VR, July 13, 1995, in the wording of the Law of Ukraine N 1775-III, June 1, 2000)

Article 4. Restrictions in Conducting Entrepreneurial Activity Activities, connected with turnover of drugs, psychotropics and their analogues or precursors, shall be carried out according to the Law of Ukraine “On Turnover of Drugs, Psychotropics and their Analogues and Precursors in Ukraine”. Activities, connected with the production and sales of weapons and ammunition thereto as well as production of amber, guarding of certain extra-important objects of a state property right, the list of which shall be specified according to the procedure, established by the Cabinet of Ministers of Ukraine, as well as activity, related to conducting of a criminal, judicial-and-medical, judicial-and-mental expertise and designing, testing production and operation of carrier rockets, including their space launches with any purpose, may be fulfilled only by state enterprises and organizations, and execution of pawn operations – full ability companies. Activity, connected with maintenance service and operation of prime networks (except local networks) and satellite systems of telecommunication in the public telecommunication networks (except satellite telecommunication systems in the public networks, which have an earth conjugation station at the territory of Ukraine and are created or deployed with the help of the national carrier rockets or space vehicles), payments and delivery of pensions, subsidies to low- income citizens shall be performed exceptionally by state-owned enterprises and telecommunication companies. (provision of part three of Article 4, according to which activity, related to the payment and delivery of pensions and subsidies to low-income citizens shall be performed exceptionally by state-owned enterprises and telecommunication companies, shall be recognized that, meeting the Constitution of Ukraine (is constitutional), according to the Decision of the Constitutional Court of Ukraine N 10-rp/2001, June 20, 2001) Activity, directed at production of mixed motor fuels (A-76Ek, A-80Ek, A-92Ek, AI-93Ek, A-95Ek, A-98Ek) containing not less than 5 percent of high-octane oxygenic additions – dehydrated methyl alcohol and ethyl-tret-butyl ether, shall be carried out by petroleum refining enterprises, the list of which shall be established by the Cabinet of Ministers of Ukraine. Activity, related to the production of high-octane oxygenic additions, specified in part four of this Article, shall be performed by state distilleries, the list of which shall be established by the Cabinet of Ministers of Ukraine. (Article 4 is as amended by the Laws of Ukraine N 2697-XII, October 15, 1992, N 3318-XII, June 24, 1993, N 3714-XII, December 16, 1993, N 4039-XII, February 25, 1994, N 109/94-VR, July 14, 1994, N 188/94-VR, September 23, 1994, N 188/94-VR, September 23, 1994, N 263/94-VR, December 1, 1994, N 58/95-VR, February 15, 1995, N 304/95-VR, July 13, 1995, N 473/95-VR, December 14, 1995, N 497/95-VR, December 22, 1995, N 194/96-VR, May 15, 1996, N 626/96-VR, December 20, 1996, N 278/97-VR, May 20, 1997, in the wording of the Law of Ukraine N 726/97-VR, December 23, 1997, as amended by the Laws of Ukraine N 122/98-VR, February 12, 1998, N 358-XIV, December 24. 1998, N 381-XIV, January 12, 1999, N 784-XIV, June 30, 1999, N 863-XIV, July 8, 1999, N 969-XIV, July 14, 1999, N 1121-XIV, October 6, 1999, N 1288-XIV, December 14, 1999, N 1328-XIV, December 21, 1999, N 1770-III, June 1, 2000, N 1841-III, June 22, 2000, N 1869-III, July 13, 2000, N 1969-III, September 21, 2000, in the wording of the Law of Ukraine N 1775-III, June 1, 2000)

Article 5. Principles of Entrepreneurial Activity Entrepreneurship shall be exercised on the grounds of the following principles: free choice of the type of activity; attraction on a voluntary basis of property and funds of legal entities and citizens to the entrepreneurial activity; independent development of activity program and choice of suppliers and consumers of the manufactured products, as well as establishment of prices according to the legislation; free hiring of employees; attraction and application of material-and-technical, financial, manpower, natural and other types of resources, application of which is not prohibited or restricted by the legislation; free disposal of profits, remaining after payment of all fees, established by the legislation; independent performance of foreign-economic activity by entrepreneur - legal entity and use by any entrepreneur of its share of currency income due to it.

Article 6. Organizational Forms of Entrepreneurship Entrepreneurship in Ukraine is exercised in any organizational forms, determined by the laws of Ukraine, upon the choice of entrepreneur. (part one of Article 6 is as amended by the Law of Ukraine N 1987-III, September 21, 2000) The procedure of creation, operation and reorganization and liquidation of certain forms of entrepreneurship shall be determined by the relevant legislative acts of Ukraine. In case this procedure is not established by special legislation, the entrepreneur shall follow this Law and its regulations.

Article 7. Legislation on Entrepreneurial Activity The relationships, related to execution of entrepreneurial activity, shall be conditioned by this Law and other legislative acts of Ukraine. Chapter II TERMS OF PERFORMING OF ENTREPRENEURIAL ACTIVITY

Article 8. State Registration of Entrepreneurship The state registration of subjects of entrepreneurial activity, except associations of legal entities, performing their activity in Ukraine under the terms of a contract on distribution of products, shall be carried out in the executive committee of the city or district Council or district or Kyiv or Sevastopol district state administrations (hereinafter- bodies of state registration) at the subject’s place of location or residence, unless otherwise stipulated by this Law. Those subjects of entrepreneurial activity, whose name contradicts the requirement of part three of Article 2 of this Law, shall not be registered. Information on the registered subjects of entrepreneurial activity shall be entered into the Register of subjects of entrepreneurial activity. The Cabinet of Ministers of Ukraine shall establish the procedure of keeping this Register. (part one of Article 8 is as amended by the Laws of Ukraine N 1807-III, June 8, 2000, N 2356-III, April 5, 2001) The following documents should be provided for the state registration of a subject of entrepreneurial activity - legal entity: decision of the property owner (owners) or a body, authorized by him/her (them) on creation of a legal entity (except private enterprise). Where there are two or more of such owners or bodies, authorized by them, such a decision shall be the constitutive agreement, as well as minutes of constituent assembly (conference) in cases, envisaged by the law; statute, where it is necessary for the organizational form of entrepreneurship under creation; registration card of a standard pattern, which is simultaneously an application for the state registration; document, certifying the owner’s (owners’) payment of fee to the statutory fund of the subject of entrepreneurial activity in the amount, determined by the law; document, certifying payment of the state registration fee; creation of public corporations (except public corporations, created in the process of privatization and (or) corporatization) requires submission of a report on the results of subscription for shares, certified by the State Securities and Stock Market Committee. (part two of Article 8 is supplemented with paragraph seven according to the Law of Ukraine N1987-III, September 21, 2000) Citizens, intending to exercise entrepreneurial activity without creation of a legal entity, shall provide a registration card of a standard pattern, which is simultaneously an application for state registration, as well as a copy of certificate on awarding an identification code of a physical person - payer of tax and other compulsory payments and a document, certifying the state registration fee payment. Location of a subject of entrepreneurial activity (legal entity) by the date of state registration may be location (place of residence) of one of the founders, or other place, which is confirmed by the lease contract or other relevant agreement. Bodies of state registration may not demand from subjects of entrepreneurial activity providing other documents than those, specified by this Law. State registration of subjects of entrepreneurial activity shall be performed under the presence of all the required documents on the application principle within not more than 5 working days. Within this period bodies of state registration should enter the information from the registration card into the Register of subjects of entrepreneurial activity and issue a certificate of a standard pattern on the state registration. This certificate shall include the identification number (for legal entities), which is provided to the bodies of state registration by the bodies of state statistics, or identification number of a physical person - payer of the tax and other compulsory payments. According to the legislation, officials of the state registration body shall bear administrative responsibility for violation of terms of registration or demand to provide documents, not envisaged by the legislation. Within five days from the date of registration the bodies of state registration shall forward a copy of a registration card with a record on the state registration to the corresponding state tax body and body of state statistics and submit information on the state registration of a subject of entrepreneurial activity to the Social Insurance Fund and Pension Fund of Ukraine. Certificate on the state registration of a subject of entrepreneurial activity and copy of a document, certifying its registration at the state tax inspection body, shall be the basis for establishing accounts in any bank of Ukraine and other countries upon the choice of the subject of entrepreneurial activity and by consent of these banks according to the procedure, established by the National Bank of Ukraine. The subject of entrepreneurial activity shall forward a notification on the opening or closing of bank accounts to the state tax body, in which it is registered as a payer of taxes and fees (compulsory payments). Such notification shall be handed personally or sent to the address of the relevant tax body with notification of delivery within three working days from the day of opening or closing of an account (the day of account opening or closing inclusive). The central tax body of Ukraine shall establish the form and contents of notification of the opening or closing of bank accounts. In case of the change of the name or organizational and legal form of a subject of entrepreneurial activity, as well as form of ownership, subjects of entrepreneurial activity should submit the relevant documents for their re-registration within a month term from the moment of commencement of such changes. Re-registration of a subject of entrepreneurial activity shall be carried out in accordance with the procedure, established for its registration. In case of re-registration of a subject of entrepreneurial activity, who is identified as a successor of an enterprise, privatized as an integral property complex, this subject shall submit a document, certifying its ownership right to the specified object. A subject of entrepreneurial activity may open branch offices (departments), representations without creation of a legal entity. Establishment of the specified subdivisions shall not involve their state registration. A subject of entrepreneurial activity shall notify the body of state registration of the establishment of a branch office (department) or representation through entering additional information into its registration card. The owner (owners) or bodies, authorized by him/her (them), which submit documents for the registration of a subject of entrepreneurial activity, shall bear responsibility for the conformity of statutory documents, submitted for the purposes of registration, in accordance with the acting legislation. In case of change of its location place, the subject of entrepreneurial activity should inform the body of state registration thereof within a seven-day term. Non-fulfillment of this requirement shall entitle the bodies of state registration to apply to the court (arbitration court) for cancellation of the state registration. Cancellation of the state registration shall be carried out upon application of the owner (owners) or bodies, authorized by him/her (them) or by the personal application of individual entrepreneur, as well as on the grounds of decision of the court (arbitration court), in case of: recognition the statutory documents invalid or those, contradicting the legislation; exercising activities, contradicting the statutory documents and Ukrainian legislation; untimely notification by the subject of entrepreneurial activity of the changes in its name, organizational form, form of ownership and place of location; recognition a subject of entrepreneurial activity bankrupt (in cases, stipulated by the legislation); non-providing the bodies of state tax service of tax declarations with financial reports according to the legislation. (paragraph six of part eighteen is as amended by the Law of Ukraine N 1708-III, May 11, 2000) Cancellation of the state registration of a subject of entrepreneurial activity shall be executed by the body of state registration under the presence of liquidation balance, made and approved in accordance with the legislation, and other documents, confirming application of measures on liquidation of a subject of entrepreneurial activity as a legal entity. The list of these documents shall be established by the Cabinet of Ministers of Ukraine, by means of entering it to the Register of subjects of entrepreneurial activity. Body of the state registration within a ten-day term shall notify the corresponding state bodies of tax and bodies of state statistics on cancellation of the state registration of a subject of entrepreneurial activity. Cancellation of the state registration of a subject of entrepreneurial activity shall deprive the subject of entrepreneurial activity of its status of legal entity and shall be the basis for its removal from the Unified State Register of enterprises and organizations of Ukraine. Refusal of the state registration may be appealed in court. A fee in the amount, established by the Cabinet of Ministers of Ukraine, shall be paid for the state registration. The obtained funds shall be used according to the procedure, established by the Cabinet of Ministers of Ukraine. The laws of Ukraine may establish special rules of the state registration of certain types of entrepreneurial activity. The Cabinet of Ministers of Ukraine shall establish the provisions on the state registration of subjects of entrepreneurial activity. (Article 8 is in the wording of the Law of Ukraine N 2697-XII, October 15, 1992, as amended by the Laws of Ukraine N 3716-XII, December 16, 1993, N 82/95-VR, March 2, 1995, N 725/97-VR, December 16, 1997, in the wording of the Law of Ukraine N 762/97-VR, December 23, 1997)

Article 9. Right of Hire of Employees and Social Guarantees of their Employment For the purpose of conducting entrepreneurial activity an entrepreneur may enter into an agreement with citizens as to their employment. When concluding a labor agreement - contract, including cases, envisaged by the laws of Ukraine, the entrepreneur shall secure the conditions and protection of labor, its remuneration in the amounts, not lower than the minimum level, being practiced in this republic, as well as other social guarantees, including social and medical insurance and social maintenance, in accordance with the acting legislation. (part one of Article 9 is as amended by the Law of Ukraine N 2401-III, April 26, 2001) In case of disablement the entrepreneur shall recover the losses to the injured in cases and under the procedure, established by the acting legislation.

Article 10. Responsibilities of Subjects of Entrepreneurial Activity An entrepreneur is liable to cause no damage to the environment and observe the rights and interests of citizens and enterprises, institutions and organizations, and the state which are protected by the law. The entrepreneur shall bear property and other responsibilities, established by the law, for the caused damage and losses. The court may announce a subject of entrepreneurial activity bankrupt according to the procedure, specified by the Law of Ukraine “On Restoring a Debtor's Solvency or Recognizing It Bankrupt”. (part three of Article 10 is in the wording of the Laws of Ukraine N 2684-XII, October 14, 1992, N 2409-III, May 17, 2001)

Article 11. Termination of Entrepreneurial Activity The entrepreneur’s activity may be terminated: on the own initiative of entrepreneur; on the grounds of decision of the court or arbitration court in cases, envisaged by Ukrainian legislation; (paragraph three of Article 11 is in the wording of the Law of Ukraine N 2684-XII, October 14, 1992) in case of expiry of license validity or its cancellation; (paragraph four of Article 11 is as amended by the Law of Ukraine N 762/97-VR, December 23, 1997) paragraph five of Article 11 lost its validity (according to the Law of Ukraine N 2684-XII, October 14, 1992, due to this paragraph six shall be shifted to paragraph five) on other grounds, envisaged by the legislative acts of Ukraine. Chapter III ENTREPRENEUR AND THE STATE

Article 12. General Guarantees of Rights of Entrepreneurs The state shall guarantee equal rights to all the entrepreneurs, irrespective of organizational forms they have chosen, and provide equal opportunities of access to the material-and-technical, finance, manpower, information, natural and other resources. Where the entrepreneur supplies goods, performs works or provides services, directed at satisfaction of the state’s demands, the state shall contribute to providing this entrepreneur with material and technical and other resources. (part two of Article 12 is in the wording of the Law of Ukraine N 481/96-VR, November 12, 1996) In particular cases, specified by the law, an entrepreneur or a citizen, employed by the entrepreneur, may be involved into execution of his/her civic duties in working hours. The body, making such a decision, shall recover the relevant damage to the entrepreneur. All disputes, arising with respect to damage recovery, shall be settled in court or arbitration court according to their jurisdiction.

Article 13. Guarantees of Property Rights of Entrepreneur The state shall secure inviolability of entrepreneur’s property and protection of his/her ownership rights. The state’s withdrawal of basic assets and operating assets of entrepreneur or other property, used by this entrepreneur, is not allowed, except cases, envisaged by the legislative acts of Ukraine. The damage caused to an entrepreneur, due to violation of his/her property rights, protected by the law, by citizens, legal entities and state bodies, shall be refunded to this entrepreneur according to the acting legislation.

Article 14. State Support of Entrepreneurship In order to arrange favorable organizational and economic conditions for the development of entrepreneurship, the state shall: under the terms and procedure, envisaged by the acting legislation, provide an entrepreneur with plots of lands and state property (industrial and uninhabited buildings, laid up and unfinished objects and constructions, unused equipment), required for exercising entrepreneurial activity; contribute to organization of material-and-technical maintenance and informational servicing of entrepreneurs, as well as training and retraining of personnel according to Article 12 of this Law; perform primary construction of unassimilated areas by objects of industrial and social infrastructure with their subsequent sale or transfer as a credit to entrepreneurs; promote modernization of technologies, innovation activity, exploration of new types of products and services by means of economic instruments (appropriate subsidies, tax concessions, etc.); provide enterprises with appropriate credits; provide other types of aid;

Article 15. State Regulation of Entrepreneurship The state shall legislatively secure freedom of competition between entrepreneurs and protect consumers’ rights against unfair competition and monopoly in any spheres of entrepreneurial activity. Bodies of state administration shall develop their relationships with the application of: tax and finance-and-credit policy, including establishment of tax rates and state credit interest, tax preferences; prices and pricing rules; appropriate subsidies; currency exchange rate; amounts of economic sanctions; state property and system of reserves, licenses, concessions, leasing, social, ecological and other norms and standards; scientific-and-technical, economic and social republican and regional programs; agreements on execution of works and supplies for the state needs. Interference of state bodies with the economic activity of entrepreneurs is not allowed, unless it affects the rights of state bodies for the inspection of entrepreneurs’ activity, ensured by Ukrainian legislation. State bodies and officials may give their instructions to entrepreneurs only within the scope of their authorities, established by the legislation. In case the state body issues an act that lies beyond its competence or requirements of the legislation, the entrepreneur may apply for the court to invalidate such act. Adoption of acts by state bodies on the privileged status of subjects of entrepreneurial activity of one form of ownership with respect to entrepreneurial activity of other forms of ownership is not allowed. (Article 15 is supplemented by a new part according to the Law of Ukraine N 304/95-VR, July 13, 1995, due to this part five shall be shifted correspondingly to part six) Losses, caused to entrepreneur due to his/her execution of instructions of state bodies or other bodies or their officials, which caused violation of entrepreneur’s rights, or due to improper execution of duties towards entrepreneurs, which are envisaged by the legislation, by such bodies or their officials, shall be recovered by these bodies. All disputes, related to the losses recovery shall be settled in court or state arbitration.

Article 16. Activities of Foreign Entrepreneurs Foreign citizens and persons without citizenship, executing entrepreneurial activity within the territory of Ukraine, its continental shelf and in the exclusive (maritime) economic area shall follow the same rules and bear the same liabilities as Ukrainian citizens, unless otherwise stipulated by the Constitution of Ukraine, this Law and legislative acts of Ukraine. Peculiarities of conducting entrepreneurial activity in the territory of Ukraine, its continental shelf and in the exclusive (maritime) economic area by foreign legal entities shall be established by the legislative acts of Ukraine.

Article 161. Obligations of Legal Entities in Case of Emergency In case of introduction of the state of emergency, where necessary, an apartment duty may be imposed on legal entities for the purpose of temporary quartering of evacuated or temporarily resettled population, rescue crews and military sub- divisions, involved into elimination of extraordinary situations. (The Law is supplemented with Article 161 according to the Law of Ukraine N 2788-III, November 15, 2001)

Article 17. International Treaties Where an international treaty of Ukraine provides for other rules different to those, envisaged by Ukrainian legislation on entrepreneurship, rules of the international treaty shall apply. Chairman of the Verkhovna Rada of the Ukrainian SSR L. KRAVCHUK Kyiv February 7, 1991 N 698-XII