Legal aspects of foreclosure on a share in the authorized capital of a limited or additional liability company

The article is devoted to the analysis of the legal aspects of foreclosure on a share in the authorized capital of a limited liability company (LLC) or an additional liability company (ALC) as a ground for the termination of a participant’s corporate rights. It is substantiated that foreclosure on a share in the authorized capital of an LLC/ALC constitutes a legal fact that leads to the termination of ownership over such a share, and accordingly, to the termination of the corporate rights of the participant based on that ownership. Emphasis is placed on the necessity of distinguishing between the concepts of “right to a share” and “corporate rights” in the context of legal enforcement. The study explores the procedure for enforcing executive documents that provide for foreclosure on a share, as well as the specific features of the extrajudicial method of foreclosure on a share in the authorized capital of an LLC or ALC pursuant to a pledge agreement. The article analyzes the provisions of the Law of Ukraine “On Limited and Additional Liability Companies” regarding the company’s notification, share valuation, observance of the participants’ preemptive right to acquire the share, and the legal consequences of failing to comply with such requirements. Particular attention is paid to the impact of legislative amendments, especially the Procedure for Maintaining the Accounting System of LLC/ALC Shares, on the foreclosure process. It is emphasized that even in the case of extrajudicial foreclosure, the preemptive rights of other company participants must be observed. The article includes case law examples, particularly the conclusions of the Commercial Cassation Court of the Supreme Court of Ukraine regarding the legal nature of agreements on the transfer of property as debt repayment and the obligation to ensure the preemptive right of other participants when foreclosing on the debtor-participant’s share. The mechanism of share transfer to the secured creditor due to non-performance of the secured obligation is explained, along with the potential abuse of the pledge mechanism to circumvent the preemptive rights of other participants. The authors substantiate the necessity of improving legislative provisions to ensure transparency and good faith in the foreclosure procedure on a share in the authorized capital of LLCs/ALCs, and to guarantee the exercise of corporate rights by other participants. It is concluded that maintaining a proper balance between the rights of the creditor and the company’s participants is essential in cases of foreclosure on a debtor-participant’s share.