Can a serviceman be engaged in business activity?

Since the beginning of the full-scale invasion, many entrepreneurs have joined the ranks of the Armed Forces of Ukraine. As of the third year of the Great War, the issue of regulating the activities of LLCs and sole proprietorships registered in their names remains unclear to many. Can a serviceman be an entrepreneur?

Military service and private entrepreneurship

More than 300,000 new sole proprietorships were registered in 2023, up 7% from the pre-war year of 2021. Despite the positive trend shown by the open registers, questions from active military personnel about continuing their businesses appear on social media quite often.

The relevant law regulating relations regarding military duty and service does not prohibit entrepreneurial activity by military personnel. This applies to those mobilized for a particular period and those hired on a contract basis. The law also does not establishing a sole proprietorship while performing duties in the Armed Forces.

At the same time, in some cases, the business activities of military personnel are imposed with restrictions. The key to determining whether a particular person falls under these restrictions is whether they are a military official. “Military officials are servicemen who hold full-time positions related to the performance of organizational, administrative or administrative and economic duties, or who are specially authorized to perform such duties in accordance with the law,” according to part 12 of Article 6 of the Law of Ukraine “On Military Duty and Military Service.”

If such persons are engaged in entrepreneurial activity and take up a military position in the Armed Forces of Ukraine, they are obliged to cease their business activity within 15 business days. Failure to comply with this and other provisions of the Law on Combined Employment entails administrative liability.

It is also worth noting that organizational, administrative, and economic functions are determined not by military rank but by specific duties and functions performed by a military officer. In particular, commanders are military officials. According to the National Agency on Corruption Prevention’s Explanations of 13.11.2023, military officials are persons who:

• hold full-time positions related to the performance of organizational, administrative, or administrative and economic duties;
• are specially authorized to perform such duties in accordance with the law.

The NACP defines the content of organizational and administrative functions in the following way:

• “Administrative and economic functions (responsibilities) are responsibilities for managing or disposing of state and municipal property (establishing the procedure for its storage, processing, implementation of control over these operations, etc.). Heads of planning and economic, procurement, and financial departments and services, their deputies, heads of departments of enterprises, etc., have such powers to varying degrees.”
• “Organizational and administrative functions (duties) are the duties to manage an industry sector, a labor collective, a work site, and the production activities of individual employees at enterprises, institutions or organizations regardless of ownership. Such functions are performed, in particular, by the heads of ministries, other central executive bodies, state and municipal enterprises, institutions, organizations, structural units, their deputies, and persons managing work sites.”

Senior military officers who do not hold leadership positions are also subjects covered by the Law in cases of

• special authorization to perform organizational and administrative duties in accordance with the law;
• management of certain areas of work (landfill manager, head of physical training and sports, legal counsel, etc.).

Combining military service and participation in LLC

According to clause 2 of part 1 of Article 25 of the Law of Ukraine “On Prevention of Corruption,” “The persons referred to in clause 1 of part one of Article 3 of this Law are prohibited

• to be members of the board, other executive or controlling bodies, or supervisory board of an enterprise or organization aimed at making a profit (except when persons perform functions of managing shares (stakes, units) owned by the state or territorial community and represent the interests of the state or territorial community in the board (supervisory board), unless otherwise provided by the Constitution or laws of Ukraine, except as provided for in paragraph one of part two of this article).”

Within 60 days after being appointed (elected) to a position, military officers are obliged to transfer their enterprises and corporate rights to another person in accordance with the procedure established by law.

This requirement applies to the military officials mentioned above. Such servicemen and servicewomen are obliged to comply with the anti-corruption legislation and transfer their corporate rights to another person. However, the transfer of corporate rights to management does not constitute a deprivation of such rights.

The law only requires that they cannot manage companies but cannot prohibit them from being business owners, including the right to receive dividends. Therefore, the law obliges such servicemen to remove themselves from making any management decisions in their companies so that this does not create an opportunity to use their official powers or related opportunities to obtain undue advantage.

At the same time, if the serviceman does not perform organizational, administrative, and economic functions, this requirement does not apply to him.