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Buying and selling business in the Republic of Belarus: transaction processing and risk management

Deals on buying and selling business generally involve the transfer of a substantial amount of money from a buyer to a seller. This circumstance necessitates a diligent attitude to compliance with an established procedure of registration and implementing contractual relationship and buyer’s presale examination of the financial and legal situation of the acquired company.

Depending on the legal form of a legal entity, there are 3 methods for the sale of ready business:

  • Sale of the unitary enterprise as a property complex;
  • Sale of the share in a limited liability company (hereinafter referred to as LLC);
  • Sale of the Joint Stock Company’s shares.

Individual peculiarities of selling a business are typical for all the above-mentioned methods.

So, for example, if the owner of the unitary enterprise, the share or the stocks is a legal entity, this entity must decide on the selling of the enterprise, shares and stocks before the selling of its assets under the constituent documents procedure.

If the owner of the enterprise, shares, stocks is a natural person and such enterprise, shares, stocks were established (acquired) by himself during marriage, then it’s necessary to obtain the consent of the husband (wife), if other rules for managing the property are not established in the marriage contract.

Selling the enterprise as a property complex

The procedure for selling the enterprise as a property complex requires compliance with a series of steps.

So, a vast amount of documents must be established and considered by the parties before being signed:

the document, constituting the results of the inventory;

balance sheet (ledger for organizations and individual entrepreneur applying the simplified taxation system);

audit report about the composition and value of the enterprise as the property complex;

list of all debts (commitments) included in the composition of the enterprise indicating creditors, their nature, level and deadlines of claims, etc.

Before selling the enterprise it’s necessary to notify all creditors about selling.

If this has not been done before, it is necessary to register the company as a property complex before the sale of the company. Registration procedures are carried out by the registrar of the National Cadastral Agency of Belarus.

Under the contract of sale of the enterprise, the seller undertakes to transfer the enterprise as a whole as a property complex to the ownership of the buyer. At the same time, the rights for trade names, trademark, service mark and other means of identification of the seller and his goods, works or services are transferred to the buyer, unless otherwise provided by the agreement.

The rights of the seller, received by him on the basis of a special permit (license) for certain specific activities, are non-transferable.

The contract for the sale of enterprises must be concluded in writing by drawing up a single document signed by the parties. Non-compliance with the written form of the contract entails its invalidity.

It is necessary to pay special attention to the fact that the contract for the sale of an enterprise is a subject to state registration and shall be deemed to be concluded only from the moment of such registration.

The verification of contracts for the alienation of enterprises as property complexes is a subject to state duty in the amount of 25 base rates (1 base rate- 25.5 Belarusian rubles).

It is recommended to indicate the purpose of the acquisition of the enterprise in the contract. Subsequently, the buyer is entitled to claim in a court the termination or amendment of the contract and the return of what is performed by the parties under the contract, if it is established that the enterprise is unfit for the purposes specified in the contract and these defects were not eliminated by the seller.

Subsequently, the transfer of the company from the seller to the buyer is carried out on the transfer statement and is considered to be held from the date of signing this statement by both parties.

The ownership of the enterprise passes to the buyer from the moment of state registration of this right, which must be exercised immediately after the transfer of the enterprise to the buyer.

Taking into account the complicated procedure of selling an enterprise as a property complex, in practice, the seller reorganizes an enterprise by transforming it into a business entity, for example, LLC, in which there can also be only one founder and enter into an agreement with the buyer for selling a share in LLC.

Sale of a share in LLC.

When alienating a share in LLC, it is important to observe the rights of other participants and the company itself with respect to the share being sold. Thus, LLC participants enjoy the priority right to purchase a share offered for sale in proportion to the size of their shares in the company's charter capital.

The procedure for a member of LLC who intends to sell its stake is determined by the charter and must contain:

- the form and the method of providing the notification of the other participants of this company and the company itself of the intention to sell its share (part of a share) in the charter capital of entity;

- the requirements for the information included in this notice (price and other terms of sale).

In case LLC members do not exercise their preferential right to purchase a share within the period established by the charter, the share of the participant in the charter capital of such a company can be sold by the company itself. If the company itself also did not use the right to purchase a share in the company, such a share can be sold to a third party. The alienation of a share in LLC to a third party is carried out at a price and under the conditions reported to its members and to the company.

The transaction for the alienation of the share in the LLC should be made in a simple written form if the requirement for its notarial form is not provided by the charter or agreement of the parties.

After the share has sold to a third party, the LLC must be notified in writing about the alienation of the share with the submission of evidence of such alienation. The acquirer of a share in an LLC shall exercise the rights and obligations of a member from the moment this entity is notified of the said expropriation.

All rights and obligations of the member who has sold his share shall pass to the acquirer.

After completion of the implementation procedure, the company should make a decision on the introduction of amendments and, in a 2-month period, amend the charter in connection with changes in the composition of members.

It should be noted that the violation of the preemption right of the participants of LLC or the right of the entity to purchase the sold share entails the occurrence of such participants (the company) the right within three months from the moment when they knew or should have known about such a violation, to request in court transfer to them of the rights and obligations of the share buyer.

Sale of shares of a joint-stock company.

Taking into account that small and medium businesses are more inherent in the form of a closed than an open joint-stock company, we will focus on the procedure for the sale of shares of a closed joint-stock company (hereinafter referred to as CJSC).

A shareholder who intends to sell his shares must, in the manner established by the company's charter, notify the company and other shareholders about his intention, indicating the price and other terms of sale of the shares.

CJSC shareholders have the preemption right to buy shares, which is offered for sale by other shareholders of this company.

If, as a result of the sale by shareholders, the share cannot be acquired in the offered quantity, the company has the right to acquire shares unclaimed by shareholders at the price agreed with their owner and (or) offer to purchase these shares to a third party at a price not lower than the price offered to the shareholders of the company.

If the seller has not received the consent for the purchase of shares or a refusal to purchase them from the shareholders and the company, these shares may be sold by the shareholder to any third party at a price not lower than the price offered to the shareholders of the company.

When selling shares in violation of the preemption right any shareholder of this company and (or) the company itself has the right within three months from the moment when the shareholder or company knew about such a violation, to require in a judicial order transfer to them the rights and obligations of the buyer.

The contract for the sale of shares is concluded in a simple written form. The contract should contain the following essential conditions: the subject of the contract, the number of shares, the price of one share, the total amount of obligations under the contract, the procedure for making calculations and form of payment.

The share purchase agreement is a subject to mandatory registration by a broker or depositary. Non-compliance with the requirement of registration of the agreement entails its invalidity.

In accordance with the law, stock rights arise from the moment they are credited into the owner’s “depot” account. At the time of the debit shares from the "depot" account opened in the name of the shareholder-seller, and crediting them to another "depot" account opened in the name of the buyer, the depositary fixes the rights to the shares.

The right on shares arises only after the conclusion of the contract, its registration and appropriate actions of the depositary with records on the «depot» accounts of the previous and the new owner of the shares.

In addition, with the transfer of ownership of shares to the buyer, the buyer may need to disclose information about their acquisition in the manner and cases established by law. Information disclosure is carried out by sending a message to the buyer to the CJSC, the shares of which were acquired, as well as to the Securities Department.

In practice, the conclusion of a sale and purchase agreement anticipates the financial, tax and legal due diligence of the business offered for sale. Note that a well-conducted legal due diligence can not only reduce the price of the enterprise being sold but also warn the buyer against possible losses in the future.

An extensive list of documentation in various areas of the enterprise’s life is a subject to verification in the course of legal due diligence. Let’s stop on the most significant of them.

Note that a large amount of information about the acquired business can be obtained free of charge from the Internet.

It is possible to find out whether the enterprise was a defendant in the courts, whether it was a debtor within a summary procedure, on the website of the Supreme Court of the Republic of Belarus www.court.by.

About the initiation of enforcement proceedings in relation to a legal entity can be found on the website of the Ministry of Justice of the Republic of Belarus https://minjust.gov.by/directions/enforcement/debtors/.

The question of whether the company has outstanding debts to the budget can be answered with the help of the websites of the tax and social protection authorities www.nalog.gov.by and ssf.gov.by. On the website of the Ministry of Antimonopoly Regulation and Trade of the Republic of Belarus www.mart.gov.by can also be found the register of unscrupulous suppliers (contractors, performers) who participated in public procurement procedures. There are also a number of sites that also contain information about debtors: www.dolzhnik.by, www.transinfo.by/dolgi, and others.

Naturally, the presence of selling businesses in the above databases forces the buyer to think at least a discount on the amount of existing debt.

Special attention should be paid to corporate documentation, which confirms the formation of the charter capital, payment by the participant of the business entity, his part of the share in full. Minutes of the meetings of the supreme bodies of management of the company will help to understand the decisions taken earlier by the enterprise. For example, if a company previously made a decision on amending the charter due to the change in the composition of participants due to the sale of a share to a new participant, it is necessary to check some issues:

- whether the procedure for alienating this share was observed;

- whether the rights of other participants to the preemptive right to purchase a share were observed:

- is there any grounds for recognizing the transaction on the sale of a business as invalid under the participant’s claim.

The next set of questions are labor contracts, terms for their conclusion, conditions for bonuses, the possibility of early termination of contractual obligations. In practice, there are cases when the contracts with the top management of the company being sold include provisions for the payment of large amounts of bonuses in case of early termination of contracts concluded for a long period. Under such circumstances, the desire of the new owner to bring his specialists to the company will inevitably face the need to incur substantial expenses.

In addition to labor contracts, close attention should be paid to the analysis of commercial agreements, the availability of all necessary documents showing contractual obligations, consignment notes, work completion statements, services rendered, account reconciliation statements signed on both sides, measures taken to collect payables, compliance with currency legislation, registration requirements, ensuring receipt of payments under foreign trade contracts, etc.

It is imperative to make sure that the seller has all the permits required for a particular type of activity: licenses, certificates of conformity, diplomas, etc.

Additional attention should also be paid to intellectual property matters, registration of intellectual property objects used by the company or availability of permits from owners for such use.

It is necessary meticulously scrutiny contracts related to the provision and receipt of credits, loans, sureties, guarantees; pay attention to the registration of the rights of a legal entity to real estate, the existence of some property collateral (for example, pledge); analyze the implementation of the regulations of the regulatory authorities (if any) and much more.

Depending on the scale of activity of the acquired enterprise, a list of data for pre-sale verification can take up to 30 pages. In this regard, the question remains: how the buyer can insure their risks from the occurrence of any negative consequences arising after the purchase of a business?

In this regard, it is necessary to pay attention to the fact that it is advisable to include a clause on penalties for the seller’s failure to comply with the seller’s assurances and guarantees regarding the disclosure of all necessary information about the sold object which can have negative consequences for the business.

Адрес:
220030, Minsk, Nezavisimosti avenue, 11\2 off. 503