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You know it. You feel that your job does not lead anywhere and after long thinking you decide to start a business. You have a clear business plan, but one way or another, you will need to handle all the "formalities" – what kind of business are you going to set and so forth.

You will have to deal with many documents, confirmation and pay a visit to different offices to get started. If this area is not very close to you, one solution is to purchase a ready-made company. In the following post we will give you a piece of advice and some recommendations on what you have to keep an eye on when purchasing a ready-made company.

Intuition and the right feeling you get from the seller who wants to sell you a company is the first moment when you can tell the level of professionalism of such a seller.

Your impression from mutual communication, seller´s willingness and approach to you are qualitative indicators that should be remembered when assessing whether such a purchase may pose a risk or not.

Of course, to rely solely on the first impression is not enough. The guaranteed recipe as not to let anybody outsmart you when buying a ready-made company does not exist. However, there are procedures to reduce the level of risk in this specific transaction.

It is very useful to apply such a procedure because it addresses the situation in which someone would like to mislead you in your purchase.

At the beginning you have to decide whether to buy a company that was established only recently, and it can therefore be regarded as new, or opt for a company with a history, which has been used for business activities for some time already.

If you have an older company it is a business entity with a history. This situation has some advantages. For example banks are willing to grant you a loan, or you are more likely to get subsidies from the European Union and the like.

However, let us not forget that the older company has since its foundation entered/ registered more documents and therefore there is a room for gaps and the threat of potential risk.

A new company is logically less risky, but in the case of insincere seller such a company may have undergone a series of operation throughout its short life.

Whether you are buying a company with a long history or a new company, the first step of the analysis is to check beforehand any accounting documents of such a ready-made company, its paid and unpaid invoices, consult the bank statement, a list of the contracts and at what stage they are - whether they are completed or not and what risks they pose for your company – all that before buying!

Often the case in the analysis of ready-made companies is high balances in the cash register, liabilities to partners and many other arrears.

These all are issues that can be resolved; you just need not to forget about them. The analysis should also include confirmations from the Tax Office, the Social Insurance Agency, the relevant health insurers and banks, which state that these institutions do not record any arrears against the purchased ready-made company.

The next step is drafting the hand-over protocol on the documents that were handed over between the two parties – just in case of a forgotten document from which the future duties may arise.

The risk of such an event can be significantly eliminated in the transferor’s separate statements. We insert them to the drawn up transfer documents.

After the analysis of the company preparation and approval of the transfer documents follows. It is essential that quality documents and the Contract on the Transfer of Shares, Transferor’s statement on the state of the company (that the company is not bankrupt, has no obligations to third parties, is not involved in any litigation, has truly kept accounting under the current legislation and the like.) are prepared beforehand.

It should be noted that during the process of selling a company, it is important to bind the transferor and managing director of the company not to carry out at that time any changes, conclude new contracts and consciously impair the condition of the purchased company, etc..

But what if it turns out that the company has commitments to third parties after it was transferred? For this case it is important to have an agreement that features the clause that specifically addresses these Unexposed Commitments and also a situation in which such Unexposed Commitments become revealed in the future, although the transferor has not mentioned them beforehand (e.g. he could have forgotten about them especially if the company exists for several years).

However, if such measures are not enough for you, we can check the company through due diligence - a form of audit carried out by qualified experts, auditors and experienced lawyers who are in some way liable for the condition of the reviewed company.

Purchasing a company is not easy and therefore we recommend to entrust it to the hands of renowned companies that can prevent potential problems, so you can conduct your business with the knowledge that your new company does not hide any encumbrances that would make you business more difficult.

Author: Corlonez advisory s.r.o. Date: 6.7. 2015