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Legal grounds of legitimacy treaty equity in construction, concluded between legal entities
Legal Grounds of Validation of the a Share Building Agreement Concluded between Legal Persons Article 4 of the Law of Ukraine On Investment Activity dated the 8th of September 1991 № 1560-XII rules prohibited to invest in objects of house-building financed by natural and legal persons, including management. Such objects are to be likely invested by Building Financing Funds, Real Estate Funds, Joint investment organizations, Nongovernmental Pension Funds created under the law. They also can be financed by means of passive bonds with a staple commodity equaling to a unit of such real estate (paragraph 3 of the abovementioned Article was supplemented with new clause under the Law of Ukraine On Amendments to Legislative Acts of Ukraine No 3201-IV (3201-15) dated the 15th of December, 2005. The mentioned supplement shall intermediately forbid to conclude share building agreements because it is considered that such agreements would attract to the object of house-building natural and legal persons’ funds i.e. investments. On the other hand, the current legislation of Ukraine doesn’t have any provisions prohibiting conclusion of the mentioned agreements. To decide the eternal question:”To be or not to be?” one should legally examine a share building agreement to define exactly the list of relevant legal regulations. The Civil Law of Ukraine doesn’t envisage a share building agreement. On drafting and concluding such agreement the parties shall follow Article 6 of the Civil Code of Ukraine dated the 16th of January 2003, № 435-IV (hereinafter the CC of Ukraine) which reads: “The parties shall be entitled to enter into agreement not provided by the civil legislation acts but complying with the general foundations of the civil legislation.“ and Article 627 of the CC of Ukraine defines that the parties shall be free to conclude an agreement, to select a counter agent and to determine the provisions of the agreement taking into consideration the requirements of the current legislation. Besides, under the paragraph 1 of Article 204 of the CC of Ukraine a transaction shall be legitimate, unless the law directly establishes its invalidity or the court invalidates it. So the Civil Law permits the mentioned agreements existence because there is not any direct prohibition for their conclusion and a single individual agreement becomes null and void in every individual case only. But the question on “validation or invalidation” of a share building agreement roots in legal financing of the building. We are reminding you of the Law of Ukraine On the Investment Activity which defines the general legal, economic and social conditions of the investment activity within the territory of Ukraine. It means that the Law cannot regulate other economic and financial relations out of investment activity. That’s why we have to analyze the difference in financing of the business activity – between ‘an investment’ and ‘a share’. Article 1 of the Law the Investment Activity reads: “Investments are all kinds of property and intellectual values, invested into the objects of entrepreneurial and other types of activity, under the results of which a profit (income) is obtained or a social effect is gained. Such values may be: - funds, target bank deposits, shares, safety stock and other securities; - movable and immovable property (buildings, constructions, equipment and other material values); - intellectual property rights; - an integrity of technical, technological, commercial and other knowledge, drawn in the form of technical documentation, skills and production experience, but not patented ones (know-how), required for launching this or that type of production; - rights to use of land, water, resources, buildings, constructions, equipment, as well as other property rights; - other values. On examining provisions of the Law, we can give the definition of the word ‘investment” as deposit of the certain values (funds, property, property rights, etc.) without further participation of object of investment ( the object shall be elected under profitability and the most profitable satisfaction of needs). In a share building agreement the term ‘a share’ means amalgamation of the material resources and immaterial goods (funds, property, property rights, etc.) for the sake of the creation of the certain object. A share may include not only the investing of the certain values ( funds, property, property rights, etc.) but certain actions (e.g. drawing of the design and estimate documents, fulfillment of the construction work, participation in the building as a contractor, etc.). Shares in the agreement have a special purpose, to be exact they are directed to the object and its building. Essential characteristic feature and the purpose of the share building agreement at the same time is to acquire the object of immovable property namely fixed individual objects (apartments and premises) which form parts of general object of building mainly for personal needs. So the agreements uses the term ‘share’ not ‘investment’ because the main purpose is satisfaction of the personal needs (in contrast to investment where the main features are ‘profitability’ and ‘profitable satisfaction of needs’). Thus, a share building agreement has quite another, different from investment, legal grounds of financing business activity. That’s why such agreements cannot be restricted by article 4 of the Law of Ukraine On the Investment Activity. Thus, a share building agreement and investment contract are legally different from each other. But, despite the fact that a share building agreement is quite legitimate, some state and local authorities (with formalistic and imperative methods of management) can put obstacles in execution of the agreement when the state commission accepts objects built under the agreement and during the registration of the property rights for the objects.
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