Jan. 2015—When Iryna Tereshcenko registered her new business with the Ukrainian Government, it was done quickly and efficiently. But when the business did not take off, she wanted to close shop—a process that colleagues told her could be long and complex. Tereshcenko was pleasantly surprised, however, to recently find the process of closing down her business was as speedy and efficient as the process of starting it.

“I was amazed and impressed,” she said.  “Aware of the complicated and lengthy bureaucratic procedures for registering termination of your business activities, I remained in an unprofitable business, unable to bring myself to close it.”

“It was a situation whereby it cost you a dollar to enter and a hundred dollars to exit,” said Valentyna Danishevska, director of the Commercial Law Center. “For quite a while now, it has not been a problem to get registered as an individual entrepreneur and start a business, but it has been pretty difficult to terminate one’s business activities. This situation discouraged people from even trying to launch a private business venture of their own.”

Ukraine ranks 112 out of 189 countries in the World Bank’s “Doing Business” report and 84 out of 148 countries in the World Economic Forum Global Competitiveness Report. Modernizing the Ukrainian economy means making it appealing to domestic and foreign investors alike. Rule of law, freedom of contract, and protection of property rights give investors confidence, as do effective legal remedies when rights are breached. Such reforms constitute the legal foundation of a vibrant market economy.

One important way in which Ukraine reformed its business climate was simplification of the business registration process. However, until recently, it was much easier to open a registered business than to close one. Thanks to USAID efforts, both processes are now equally simple to accomplish.

Starting in 2012, USAID’s Commercial Law Reform Project for Ukraine helped to develop a law simplifying the process for business termination by individual entrepreneurs. According to the law, which was adopted in May 2014, state registrars are obligated to de-register an individual entrepreneur on the day they file an application. The entrepreneur does not have to undergo any preliminary inspections by the tax authorities or prove that all outstanding debts have been paid. If outstanding debts are involved, the entrepreneur is held liable as an individual. 

Under the previous regulation, the inspection process was mandatory for the closeout of any sole proprietorship and could take several months, ending in litigation if the entrepreneur challenged the outcome. Even if business owners agreed with the outcome of a debt assessment, the bureaucratic process was still needlessly lengthy. 

The new business-friendly environment is a welcome sigh of relief to over 3 million registered entrepreneurs in Ukraine and to those interested in joining their ranks.

USAID's Commercial Law Reform Project, which runs from October 2011 through October 2015, works to enhance the legal and regulatory environment in Ukraine, thus improving the overall business climate and facilitating investment in the country. As part of the project, the Commercial Law Center helps the Government of Ukraine draft legislation related to public-private partnerships, taxation, bankruptcy, registration of companies, and other areas critical to economic development. The Center was launched in 2003 to aid the government in developing modern legislation and market-oriented policies to replace Soviet-style laws and outdated economic regulations. 

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