Business often involves buying from an individual or company and selling to another party. Both the purchase and sale are negotiated after the deal with binding documents and files to prove the authenticity of the transaction.

Instead of building a business from scratch, many large companies today are interested in owning or acquiring certain businesses. Some features will attract the right buyers for your business.

To start a business from scratch or to buy a ready business. These two methods of entrepreneurship have their pros and cons, the so-called “disadvantages”. The company registration procedures when starting a business from scratch are standard and known in advance and depend on further development efforts. But when you buy a ready trade, everything is not so transparent.

What can attract you to buy a ready-made business: The state registration process is complete, it already has accounts, some history and reputation, employees, a base of customers and a business base The strategies are in place. There is no need to change the structure of an entity’s procurement counterparts and relationships with government officials: there is no need to terminate new contracts, obtain new licenses, obtain patents, and create new means of identification.

But there are some points that can make a ready-made business less attractive. For example, a transaction that takes place before the purchase of a company and which can be invalidated for various reasons, as well as a violation of the law. Transactions, about company debts, other problems that have occurred, or may occur. Further, one can never forget the questions of the tax authorities concerning the transaction and payment of taxes and duties within the period prior to the purchase of the company or this share. In this case, the major method of removing doubts and apprehensions is to try to obtain maximum information.

Payment and risk features when purchasing a business

Lump-sum payments for assets are not appropriate. It is better to divide the payment amount into several parts – it depends on the sequence of actions. The principal amount can be paid after the completion of the state registration process, the remaining amount can be paid after the documents related to the company and its assets. It may be better in the contract to seek to recover the loss to the buyer due to third party claims arising from the purchase of the property.

It is not too much to add the seller’s guarantee and representation to the sales contract: the claims, sanctions and encounters against any third party claims; The company’s financial statements and tax reports are accurate, with no debt on the transaction date. The right of the buyer to withdraw from a unilateral contract that includes reimbursement for damages or penalties may be a punishment for dishonest representations.

Another option is to run the company and read the documents within a few months after the first payment, to more thoroughly integrate the content of the company’s activities on the payment of the installment termination contract and on the buyer’s right Is done for. If the proceeds from the company’s activities are smaller than the figures specified in the contract, the buyer is entitled to demand the termination of the contract and return the first installment.

The buyer of the business has to keep in mind that every case of wrong provision / non-provision of information by the seller can become a reason for filing a claim against the seller.

Legal practice suggests that judges refuse to invalidate sales contracts if a plaintiff refers to the fact that he was misled by the profitability information of the purchased assets.

We recommend adding the following provisions to a contract

1. Provisions on a seller’s liability which may be represented as an opportunity for a buyer to seek to reduce a price in the case of additional taxes, penalties, tax penalties for the period prior to the purchase of the business. Another reason for such demand may be incorrect information specified in the financial statements, for example, on the company’s receivables.
2. It is appropriate to provide for a non-compete clause relating to competition with the former owner of the business – to divide the fields, areas or periods within which a competitive business cannot be started.
3. It is better to set a procedure according to which the buyer obtains the company’s documents including financials.

Tax risk while selling the business

If the sale of a business means the sale of its immovable assets, for example, immovable property, then the business can be sold by direct sale of these assets, after the reorganization of the company to separate a new company from it and a share Further sales the company split.

When the property is usually sold VAT and the income tax value must be paid, if the selling price is higher than the purchase price.

Shares are not sold in authorized capital for VAT regardless of value. But it should be kept in mind that a restructuring of a stake in the company after the result of the restructuring cannot be done because a short period of time between the establishment of the company and the sale of the stake therein may make it possible to tax.

A tax authority may consider such actions of a taxpayer as transferring assets to its authorized capital to set up another company and create a plan to avoid taxes. In this case, the taxpayer is required to pay VAT and change the legal merit of the transaction based on the valuation of the expert stating the market value of the real estate.

Legal practice suggests that if the seller of a share is a legal entity and the share is sold at a nominal value, there is a risk that a tax authority may claim to have received an unfair advantage from income tax.

If some business

This recommendation is timely for the seller of a share in the business, especially if 100% of the company’s authorized capital is transferred. As a rule, businesses are sold through several legal entities and these entities are usually members of each other. It is understandable that when a company sells 100% of its shares by selling it, this legal entity retains all its rights and obligations by becoming a member of other legal entities. These include, but are not limited to, the opportunity to read company documents, attend general meetings, and in the decision-making process, nominating candidates in management bodies and exercising other rights as determined by law.

In this case of a business purchase, a buyer purchases real estate without the obligations of the former owners (except in the case when the property suffers from mortgages or other restrictions). In this case, the risk associated with the possibility of unforeseen circumstances for the buyer is minimal.

Sales and purchase transactions of a business are complex for both sellers and buyers. Each part has its advantages and disadvantages, difficulties, and risks. These issues are usually resolved at the level of transaction planning and evaluation of the prospects of the business being purchased. Therefore, the importance of an early stage cannot be emphasized enough when entering the business of the purchase/sale of a business. Most complex issues are resolved at this level and at the stage when the plan is prepared, and documents are produced. If they are resolved, the second part of the transaction of sale of commercial property is only a formality.