Recently, there has been a great demand among entrepreneurs for legal entities with history. A legal entity with a history or a ready-made company is a legal entity that was created some time ago, worked, paid taxes, and often received licenses, permits for certain work, etc. for its activities. In the process of work, the owners of the company came to the conclusion that they did not intend to continue working with this organization. Below we will look at the firms-purchasing guide, and main nuances and features of the acquisition of an officially-registered ready made company and consider the general procedure.
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Concept of Ready-Made Firms: Legal Considerations
A ready-made business is a functioning organization that generates income renting or owning office-premises. In a ready-made business, all processes are established, as a rule, there are employees, equipment and everything necessary to run the business, the buyer simply becomes the new owner of the business.
Thus, this term is usually understood as a ready-made and registered package, which includes statutory, banking, and primary accounting documents that allow the company to begin its activities. Also, this concept can be attributed to an existing business, with profit, working capital, which has been operating for several years after it was registered in the local registry.
The advantages of a ready-made company over starting your own business can be summarized as follows. A ready-made company means the absence of lengthy preparation and collection of all necessary documents. You can start your business the very next day after purchase without any risks. In addition, many people buy existing LLCs in order to hedge their bets and create an additional enterprise just in case. A ready-made company is an opportunity:
- save a lot of time and effort on paperwork;
- choose any option from those offered in the catalog, in any city;
- select an organization with a ready-made license, with certificates and, if necessary, with access to narrow-profile permits;
- resolve all issues with registration in a matter of hours, without additional costs.
Ready-made companies, as a rule, have an original company name, paid-up authorized capital, legal address, designation of types of activities, an open bank account, a registered seal, they are registered with the pension, medical, social insurance fund, and registered with the tax authorities. A ready-made company may have a license for a certain type of commercial or economic activity.
The most reliable way for the buyer to receive a ready-made company is to re-register the founder, when the rights to the authorized capital in the form of an agreement are re-registered in favor of the client with registration of these changes in the register, extra-budgetary funds, and the bank. To ensure that the buyer has the opportunity to use the company while this lengthy procedure is taking place, the purchase of a ready-made company is accompanied by the appointment of a new general director. The decision to appoint a new director is made by the founders, after which the organization involved in the sale of ready-made companies prepares a corresponding order.
Process of Acquiring Ready-Made Companies
The procedure for acquiring a shelf enterprise consists of several mandatory stages.
- Selecting a ready-made company for purchase, in particular, selecting a suitable commercial niche and assessing the budget.
- Preparation. An inventory must be carried out, a financial report and a balance sheet must be drawn up. It is necessary to obtain an independent auditor’s opinion on the composition and value of the enterprise, as well as a list of all debts (liabilities) included in the enterprise, indicating creditors.
- Concluding a purchase and sale agreement. The contract is complex and must describe in detail the composition and cost of the enterprise being sold. The contract for the sale of an enterprise is concluded in writing by drawing up one document signed by the parties, with the mandatory attachment of the above documents.
- Notification of partners and shareholders.
- Transfer of the enterprise.
- Registration of transfer of ownership. And the ownership of the enterprise itself passes to the buyer from the moment of state registration.
The terms of sale are most often clear and simple:
- share is sold at par, settled at the market price, less often this happens through non-cash payments;
- costs of the transaction are usually borne by the buyer, less often they are divided equally;
- pre-sale preparation of our lawyers usually includes checking the company for unreliability, the director/founder for disqualification and criminal record, bankruptcy, litigation;
- pre-sale training of accountants usually includes checking the accounting database, submitted reports, tax debts, and less often – restoring accounting records;
- additional documents (major transaction, interested party transaction) are prepared by our lawyers.
In some cases, vendors might pass some business-things to new owners for free.
Possible Risks and Challenges
Buying a shelf business can be accompanied by many challenges.
- Big-scale deal. One or more interrelated deals for the alienation of company property may constitute a major transaction. This means that the decision on consent (or subsequent approval) of such a deal must be made only by the general meeting or board of directors of the company.
- Interested party deal. Similarly, a major deal requires approval.
- Deal price may be determined incorrectly; it is important for the parties to develop and apply tools to determine the exact value. The price may be influenced by the buyer’s interest in purchasing certain objects, whether the buyer has established connections in the relevant field, distribution channels, the possibility of saving costs in the production and sale of the product, whether the seller has goodwill, high business-reputation, intellectual property rights, etc.
- Confidentiality. Sometimes it may turn out that the Buyer, due to discovered circumstances, does not want to complete a deal because of defects in assets, hidden obligations, flaws in business-activities and legal risks. Typically, they conclude a separate agreement on maintaining the confidentiality of information or include provisions on maintaining confidential information in any other agreement.
- Additional obligations. The seller may include in the contract special conditions, the fulfillment of which is important for its future activities – employment of reduced personnel, preservation of the activity profile, waste disposal, compliance with emission standards, etc.
Buying a ready-made company can also have organizational issues:
- corporate name of the legal entity is not suitable for work;
- refusal to extend the contract for the provision of a legal address;
- at the time of the transaction, the formal director/founder will be disqualified;
- initial capital will not be paid on time – the possibility of invalidating previously concluded agreements;
- debts on taxes and fees have not been reconciled.
Buying an existing company has several advantages. Firstly, the process of starting a business is significantly accelerated. You don’t have to wait for registration, submission of documents and permits. You immediately receive all the necessary documents and resources to start your business.
Secondly, buying a ready-made LLC allows you to avoid risks. You get an already operating company with a client base, an established name and recognition in the market. This increases the likelihood of successful business development and minimizes potential risks.
Our team of professional lawyers is ready to provide you with comprehensive advisory and practical assistance in acquiring a ready-made company. We have a huge amount of experience and knowledge, which ensures only the most effective results.