Contractual pitfalls for foreign investors: Ukrainian legislation vs Anglo-Saxon law

Ukrainian law differs significantly from Anglo-Saxon law, which can lead foreign investors into legal traps. Learn how to avoid mistakes when signing contracts and obtain professional support in Ukraine

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Foreigners who enter Ukrainian business as investors often act within the legal customs formed in Anglo-Saxon jurisdictions (the US, the UK, Canada, etc.). However, Ukrainian law is continental and codified, which significantly affects the interpretation of agreements and the conclusion of contracts. As a result, even a well-prepared investor can easily fall into legal “traps” by signing agreements without a deep understanding of local peculiarities. In this article, we will discuss the main legal “traps” that every foreign investor should be aware of.

Top 5 legal traps that every foreign investor in Ukraine should know about

1. Gentlemen's agreements do not work

What is the problem: Anglo-Saxon legal systems often recognize the legal force of informal agreements — letters of intent, memoranda of understanding (MoU), NDAs, correspondence, and even verbal agreements. In Ukraine, however, the legal system is based strictly on written contracts — without them, no agreement has legal force, even if it was documented in correspondence.

Pitfall: A foreigner believes that after signing a LoI, they already have an “agreement” and therefore grounds for cooperation. However, the Ukrainian partner can withdraw from the process at any time without any legal consequences.

Legal advice: Always draw up a full written contract with a clear description of the subject matter, terms, conditions, amounts, and penalties for breach. Do not rely on “gentlemen's agreements” — they do not work in Ukrainian law.

Read also: 5 key mistakes foreigners make when moving and investing in Ukraine and how to avoid them.

2. Absence of the concept of “fiduciary duty”

What is the problem: In British and American law, directors, partners, and trustees have fiduciary duties — to act in the interests of the beneficiary. In Ukraine, such obligations do not exist de jure. This means that unless it is specified separately, a person is not legally obliged to act in your interests.

The trap: A foreign investor appoints a local director and expects “honest management.” But the law does not oblige the director to be loyal to the owner or partner.

Legal advice: Include standards of good faith, responsibility for conflicts of interest, reporting obligations, and penalties for violations in contracts with managers, partners, and trusted persons.

Read also: How to protect investments in Ukraine.

3. Insufficient protection in corporate agreements

What is the problem: In Anglo-Saxon systems, shareholders' agreements with provisions on drag-along, tag-along, put-option, and deadlock are widely used. These are mechanisms that are common in shareholder agreements in the US and the UK. In Ukraine, however, some of them either do not work or have little effect if not implemented in the company's charter.

The trap: Having signed a “good” shareholders' agreement in English, a foreigner believes that his interests are reliably protected. However, a Ukrainian court may declare such a document invalid or limited in its effect.

Legal advice: Be sure to duplicate corporate mechanisms in the charter of a limited liability company (LLC) or joint stock company (JSC). Without this, even a “ironclad” agreement may not save you.

Read also: How to find a reliable business partner in Ukraine as a foreigner.

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4. Abuse of “signatory control”

What is the problem: In Ukrainian companies, one person (the director) has sole signing authority, and this is often not verified. Investors from Anglo-Saxon countries often assume that large transactions require the consent of the board or partners. But in Ukraine, the director can independently sell the company's property or conclude a critical contract.

The trap: A director of an LLC that you do not control can enter into agreements without your consent — and it will be legal.

Legal advice: Limit the director's powers in the company's articles of association: for example, prohibit the conclusion of agreements exceeding a certain amount without the approval of the general meeting. This will help avoid unwanted decisions.

Read also: What businesses do foreigners most often open in Ukraine to obtain a residence permit?

5. The court system and choice of law: English law ≠ English court

What is the problem: Foreigners want to include the phrase “this agreement is governed by the laws of England and Wales” in their contracts. This creates an illusion of security. However, Ukrainian courts do not always recognize such a condition, especially in domestic contracts between residents.

The trap: You believe that you will be able to resolve a dispute in London, but in practice, a Ukrainian court will consider the case under Ukrainian law and with a formal approach.

Legal advice: For local agreements, it is better not to overcomplicate things: choose Ukrainian law, but with clear provisions on arbitration or international commercial arbitration (e.g., ICC, VIAC, or ICAC at the Ukrainian Chamber of Commerce and Industry).

How to protect yourself in the Ukrainian business environment?

The legal culture in Ukraine is significantly different from the familiar Anglo-Saxon mentality. Direct transplantation of Anglo-Saxon practices will not work without adaptation. To avoid pitfalls:

1. Do not rely on gentlemen's agreements.

2. Include all obligations in contracts and statutes.

3. Use Ukrainian lawyers who understand international logic but work within the framework of local law.

4. And most importantly: do not transfer your expectations from London or New York to Kyiv without adaptation.

Need help reviewing or drafting a contract in Ukraine? Contact Visit Ukraine lawyers — our specialists work with investors from different countries and know how to make a Ukrainian document English-friendly.

We remind you! In 2025, Ukraine will offer a wide range of tax incentives for foreign investors. Read about the incentives available and how to use them effectively in our previous article.

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