Authorized capital of law office or law firm: how much to determine?

When establishing a law firm or law office, the decision on its establishment and the charter must contain information about the amount of the authorized capital. What amount should be specified?

Pursuant to Part 2 of Article 9 of the Law «On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations», the Unified State Register must contain certain information about a legal entity, including (clause 15) the amount of the authorized (share) capital (mutual fund) and the amount of the share of each of the founders (participants).

For certain legal entities (banks, insurance companies), there is a minimum authorized capital requirement. Its purpose is to protect the interests of creditors. The latter may (theoretically) satisfy claims against the legal entity at the expense of the authorized capital.

However, there are no requirements for the minimum amount of the authorized capital of law office or law firm. That is, it must be there, but its amount may be as little as a formal UAH 1. Then what is the point of it?

The authorized capital in the case of a law office or law firm hardly performs an economic function. Although some people still focus on its size when assessing the reputation and reliability of the counterparty. But there are doubts about this, because here you need to know how the capital was formed (by money, property or intellectual property, which the founder can estimate at a billion hryvnias).

And yet, in this case, it is not the size but the distribution of the founders' participation in its formation that matters more. However, this does not apply to the bureau, as it is created by one attorney, whose contribution will always be 100%.

For a law firm, it should be borne in mind that the participation of the founders in the formation of the authorized capital affects corporate relations (participation in the management of the law firm), as well as the distribution of profits through the accrual and payment of dividends.

Pursuant to Article 96-1 of the Civil Code, corporate rights are acquired by a person from the moment of acquisition of ownership of a share in the authorized capital of a legal entity.

In particular, founders have the right to:

- Participate in the management of a legal entity in the manner prescribed by the constituent document;

- participate in the distribution of the legal entity's profit and receive a part of it (dividends) if such legal entity is intended to make a profit;

- Alienate shares in the authorized (share) capital of a company, securities, shares and other objects of civil rights that certify participation in a legal entity;

- receive a part of the legal entity's property in case of its liquidation.

Corporate relations are relations between participants of legal entities, including those that arise between them before the state registration of a legal entity, as well as relations between a legal entity and its participants regarding the emergence, exercise, change and termination of corporate rights.

The material was prepared by Dmytro Khutornyi, Deputy Chairman of the UNBA Committee on Legal Practice.

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