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The key aspects of business assets protection of economic entities with large capital turnover

The key aspects of business assets protection of economic entities with large capital turnover

Recently the protection of the business assets of our clients has become one of the key directions of Patriot Law Firm. Let’s take a closer look at the main characteristics and principles of the business assets protection of economic entities with large capital turnover.

The protection of business assets can be defined as economically pre-adjusted placement of Client’s capital, so that it is protected from external risks, does not attract too much attention of creditors and is not available to them, but at the same time, would be available and easily manageable for the owner of capital.

A successful business, especially in the Ukrainian realities, is a huge daily work, coupled with the risk 24/7. To reduce this risk, put it into frames of deliberate and considered conduct of business is impossible without competent legal audit.

Based on our experience, the main way of protection of the Client’s business assets is the application of the preventive protection system, namely:

The definition of the most favorable organizational and legal form of a business entity, depending on the type of activity. Lately the most economically and organizationally favorable organizational and legal form for big business is a private joint-stock company, holding, less often — group company, in which the capital is divided into shares and the possibility of regulation of management decisions by unauthorized persons is eliminated.

Building a secure and efficient corporate structure of legal entity considering the shareholding structure of the company. Special attention should be paid to the peculiarities of preparation of constituent documents. For example, when it comes to redistribution of responsibilities among the participating companies of the holding, the formation of the scheme of asset protection at the four corners: the company — the owner of the property, the operations conducting company, the management company, protection of business owners.

Reduction of tax risks. Quite an interesting task, which in the case of our client (a major company in the field of hotel industry) was solved by the specialists of our company by transferring the risk source to other businesses, and by outsourcing accounting, financial services and delegation of responsibility for tax risk of insurance organization.

Work on the privacy policy of the company, by introducing the element of confidentiality to the corporate culture of the company, holding of seminars with personnel and implementation of chapter of privacy policy for contractors to the contracts, reduction of the volume of information disclosed through the application of technological innovations, including categorized communications and special software.

Corporate restructuring of domestic assets with the help of non-resident companies. The most popular model of reducing the financial risks by attracting foreign companies with non-resident jurisdictions to the structure of ukrainian companies has been recently losing its effectiveness in case of ignorance of some aspects of work with offshore zones and lack of experience of dealing with such companies.
When the company achieves certain success and becomes consistently profitable, it is more likely to become an object of hostile takeover in realities of our country. The most dangerous mechanism of the transfer of ownership of the company to a new unfair owner is a hostile takeover.

The most common ways of hostile takeover are:
— the mass purchase of shares from minority shareholders (PJSC, OJSC) or founders’ participating interests in the charter capital of the company (LLC);
— purchase of debt obligations of the company, followed by his artificial bankruptcy in court;
— contestation over the ownership of the company’s fixed assets;
— bringing the company’s management on their side (financial interest, green mail);
— drawing of attention of regulatory agencies to activities of the company by providing, for instance, tax authorities with misleading information;
— shareholder register manipulation (displaying of nominee shareholder in shareholder registers, etc.).The specialists of our company offer our clients the following main preventive mechanisms of protection of business against asset-grabbing:
1) development of a well-considered and stable corporate and management structure (protection of insideinformation, legitimation of the company’s activities, creation of an effective structure of corporate management);
2) control over creditor indebtedness (duediligence of all projects and contractors of the company);
3) identification of problematic aspects of the company and their protection in different areas: legal, judicial, economic, PR — effect of using the media, power, administrative and corporate factor.

A lot of our clients — business owners, given the difficult economic situation in our country and the need to quickly and unconventionally respond to changes in the external environment, come to the conclusion about the necessity of business restructuring.

Restructuring cannot be defined as narrow a concept of the company transformation. It is a complex process that has many directions, depending on the particular task and industry characteristics of the business. The restructuring process consists of improvement of the business management system, economic and financial policy of the enterprise, marketing system, operating activities, human resource management, etc.

Business owners, making a decision on the restructuring of the company, can pursue different aims:
— consolidation of business in the management of one owner;
— simplification of corporate structure and improving management efficiency and transparency of the company;
— improving the competitiveness in the domestic market;
— entering the international arena (transnational level);
— value creation;
— increasing of investment (financial) attractiveness for foreign investors.

In the process of restructuring, reorganization by accession, merger or de-merger of businesses may occur, or a package of restructuring measures for the purpose of steering the company out of economic crisis and further systematic development of the business may be taken.

Our company provides complex legal support of business assets protection of our Clients, ensuring each individual approach, which is contained in the joint search for weaknesses that can cause problems, clear definition of tasks and providing them with an appropriate for the Customer way of solution.

Properly constructed plan for asset protection, offered by the professionals of our company ensures the creation of such system of business operation, in which the cost of its asset-grabbing by the aggressor and loss risk of “business reputation” of the raider will be extremely high, and the legality of passing of title to the business as the object of raid will be significantly hindered or even impossible, that will considerably increase the security level of your business.

What is liquidation? Step-by-step algorithm

Practice shows that to open a company is quite easy and simple, but to close the business can be quite troublesome. Difficult economic situation, sometimes irrational tax legislation, not always consistent revenue bodies administering and quite often unwillingness of business owners to conduct it transparently creates a “shadowing” of almost all spheres of business, and leads to the fact that many entrepreneurs today are considering of reorganizing or closing of a business.

The procedure of liquidation of a business entity is primarily determined by its financial condition. If a current assets ratio of a legal entity is positive or neutral and it has no debts to creditors, it can be liquidated by the founders. But if the company has no funds to pay all creditors or has debts to the budget, it shall be liquidated through bankruptcy.

A significant experience in bankruptcy of professionals of PATRIOT Law Firm allows for the conclusion that in the process of liquidation and bankruptcy arise many issues that are not directly legislated, and only practical knowledge of lawyers who have repeatedly dealt with the liquidation of enterprises, allows to avoid all the pitfalls of liquidation.

It should be noted that legal gaps are not the only problem that the owners of the companies in liquidation have to face. Each of such businessmen wants to close their company safely, quickly and with no trouble, but the system of regulatory bodies’ operation often makes it impossible to carry out the liquidation in a timely manner. Moreover, as the result of tax audit some legal violations can be detected, that can be the reason for bringing a Director/chief accountant to responsibility, up to criminal liability.

In order not to delay the already time-consuming process of dissolution, and not to complicate your life with unnecessary worries about inspections, you should contact suitably qualified lawyers who will minimize risks and carry out the liquidation quickly and efficiently.

Before starting the liquidation procedure, a thorough analysis, audit of the financial condition of the company should be conducted to develop a detailed plan of actions that will need to be taken during liquidation as well as before it. It is also necessary to consider the fact that the legislation contains only a general plan and sequence of liquidation measures, and in addition, there are many particularities connected with the specificity of company’s operations or legal form of business entity, for example, joint stock companies, insurance companies, public organizations, asset management companies. So if we are not talking about LLC that has not conducted any activities and has been existing for six months, you need to understand that each case of liquidation is unique and requires a well-developed strategy and an individual approach.

In order to have a general idea of the elimination procedure, let us consider its main aspects.
Legal consequence of the business entity liquidation is, in fact, a termination of its rights and obligations to the state and contractors without legal succession. Proof that the liquidation was successful and the business entity no longer exists is a mark in USR about the liquidation of the enterprise and its removal from a register.

The plan of “common” actions in the process of liquidation of a business entity looks like this:

1. Making a decision for the liquidation of the company by its founder. For this purpose, the general meeting of shareholders is held, where the liquidator (liquidation commission) shall be elected, that is, the one who will actually perform actions on the liquidation of the company. The decisions taken by the general meeting of shareholders are recorded in the protocol. After the liquidator (usually a former Director) is elected, he exercises all the powers and authority of the Executive body of the company.
The main tasks of the liquidator are confined to: assessment of the company’s property, the specification of debtors and creditors of the company, taking actions to settle debts of the legal entity to third parties, drafting of the provisional statement of affairs.

2. Submission of the minutes of the General meeting of founders copy to State Registrar, for a record about termination of company business to be made in USR.

3. Appealing to the tax agency, pension fund, social insurance fund with petitions about the company liquidation for these authorities to make inspections. The result of such inspections should be a certificate of tax clearance and deregistration of a legal entitiy. Appealing to the regulatory authorities, if any licences, certificates, etc. has been issued to the company.

4. Notification to creditors and debtors of the liquidation of the company, determination of periods and process of creditors’ appeal with their requirements to the company in process of liquidation.

5. The closure of bank accounts that will not be used in the liquidation process.
6. Conduct of assessment and inventory of the legal entity’s property.

7. The dismissal of employees who work for a company that is in the process of liquidation in compliance with all procedural requirements (considering prohibition of dismissal of employees on maternity leave, the notification employment centre of dismissal of employees).

8. The drafting and approval of the minutes of the General meeting of owners of interim liquidation balance, which reflects debts and cost of property of the enterprise which is being liquidated.

9. Sale of the company’s in order to accumulate funds for settlement with creditors, payment of debts to creditors that filed their claims within the prescribed period and are registered in the list of creditors in order of priority.

10. The drafting and approval of the minutes of the General meeting of owners of the liquidation balance after debt repayment.

11. The division of property or funds remaining after payments to creditors among the founders of the company, that is being liquidated.

12. Transfer of documents on legal entity to the archive.

Summing up, it should be noted that when making a decision of business liquidation you need to take into account the following aspects:
• in general, for LLC and single proprietor firm liquidation procedure takes 6-12 months and this process is quite laborious and time-consuming;
• dissolution requires additional financing, namely: the payment of state fees and charges, interest intermediation, payment for publication, mailing of the letters, obtaining briefing papers;
• engaging external experts with experience of liquidation procedures will greatly simplify and speed up the whole process and will minimize the legal risks that will make liquidation easy and

How not to let money go down the wind or buy housing safely

Each person or family (hereinafter – the Buyer) wants to have their own housing. When a buyer finds a housing he likes, and above all at appropriate price, he forgets about the main thing – about the hidden catch that unfair development companies (hereinafter – the Developer) could have prepared for him.

In this article you will learn how to check the Developer, insure yourself from a bad purchase and arrange for your dream of own house not to turn into a nightmare.
Nowadays it’s an open secret that the task of the Developer is profit-making (property sale on the most favourable terms), and the task of the Buyer is to get housing (purchase of an apartment on beneficial and safe terms).

In order that you don’t have problems with the newly acquired housing, you have to do the following:

1. Check the “history” of the Developer
First of all, you need to check out the Developer in EDRPOU (Ukrainian “Unified State Register of Businesses and Organizations”). Here you need to look at the Director, if he is a legal entity in the process of termination, if there are any enforcement proceedings opened against the legal entity, creation date (the longer the legal entity exists, the better) and share capital (the more capital, the better).
Then, you need to check the Developer for debt owed to tax agency. Tax clearance indicates the reliability of the Developer.
Also you need to check the Developer in Unified State Register of Court Decisions. In the register you need to find information if there are any legal proceedings being conducted against the Developer and the matter of those proceedings.
You need to “google” some reviews about the Developer, what projects he has implemented and how successful they are. Several objects under construction that have not been commissioned yet and are being constructed simultaneous can be a reason for distrust of the Developer.

2. Check the land parcel documents
You need to check the Developer’s documents confirming the right of ownership, right of permanent use or lease of a land plot, where the construction will be conducted.
If the Developer rents the land plot, then you need to clarify the date of the lease end. This is very important given that if the Developer does not have time to complete a house before the end of the lease, it is possible that it will not be extended and a house will not be completed.

3. Check out the building documents
The main document that the Developer should have to begin construction activities is the construction permit, issued by the State Architectural and Construction Inspectorate. Without such permit it is impossible to start construction.
Also, the Contractor must be licensed for construction. Here you should check if the license period has expired.
The Customer must have the technical conditions for communication lines, the project and its expertise.
You need to pay attention to duration of all documents, according to construction period.

4. Acquire information about the contractors who will carry out the construction
You need to check the contractors in EDRPOU. There you also need to check the Director, if a legal entity is in the process of termination, creation date (the longer a legal entity exists, the better) and share capital (the more it is, the better).
Also, you need to check contractors in the Unified State Register of Court Decisions. In the register you need to check if there are any legal proceedings being conducted against the Contractor, and the matter of those proceedings.

5. Analyse the price and compare it with the market price
The buyer should remember that low prices are often offered at the beginning of construction (when only a foundation pit for the object is ready) or the Developer is unstable. The reason for low price per square meter can be serious problems of the Developer, that can lead to building halt or even mean that the Developer has not originally planned to bring it to fruition.

6. Visit the construction site
It takes a few times to visit the construction site. You should pay special attention to the number of workers and equipment present on the construction site. This will let you estimate if the Customer will meet deadline and if the house will be built at all.

7. Whom to sign a contract with and what type of a contract exactly to choose
The buyer has to choose a contract (method) and whom to sign it with.
Nowadays the most secure method is the purchase of future housing through the Construction Financing Fund (hereinafter – CFF). The presence of the third party – the Bank in CFF will let you feel safe and more confident as the Bank guarantees availability of funds for completion and depending on the type of CFF exercises control over the activities of the Developer. Before you become an investor of the construction financing fund, check the Fund Manager (the Bank), as it affects reliability of the method. Thus, the participation of a large bank as the Manager of the Fund can be a guarantee that you will receive the desired housing.
Also, to obtain housing safe enough, you may become a member of the housing association.

Another method of house-buying is the conclusion of sale and purchase agreement in the already built house. Although it is significantly more expensive than the above mentioned methods, it is safer as you already see what you buy.
There are other doubtfully legal methods of investment: a preliminary agreement, mortgage, assignment agreement – however, we do not recommend to get mixed up with them as they may cause you lots of problems.

From practical experience we may say that most of buyers do not read the contracts they sign with the Developer (hereinafter – the Agreement) to the end. Also, people are not familiar with the construction industry and are often unable to properly study the agreement and provide its quality legal evaluation. To keep the Buyer from problems in the future, our Patriot Law Firm advises to contact professional lawyers, who will accompany the Buyer during a house-buying.

Settling accounts with the Customer should be implemented by bank transfer, because the entire payment history is being saved. If you are asked to pay with cash or to bypass the Bank (to transfer funds to the account of unknown company with unknown requisites), then it is better to continue to look for housing and not to deal with this Customer.

The essential terms that a contract must contain:

  • The contract should specify the section and floor where an apartment you buy is located;
  • There should also be total apartment space and its number, the cost of one square meter;
  • Operation due and commissioning dates;
  • An apartment building plan;
  • Order of payment, terms, stages and amount of payments;
  • A list of all the documents which a construction of a project by the Developer is based on;
  • Description of an apartment;
  • Liability of parties and dispute settlement procedure;
  • Contract duration and requisites of the parties.
Some aspects of economic transactions taxation of residents with offshore jurisdictions

Recently offshore zones have become one of the main matters of discussion in the world economy.
In fact, it is all right, when business entities use offshore companies, as they are not officially prohibited at the legislative level.

However, apart from accessibility to international financial markets, the use of offshore jurisdictions by Ukrainian companies often relates to the laundering of income obtained not quite legally, to tax evasion and respectively capital outflow from the national economy. For today, Ukraine remains one of the world’s “leaders” in terms of volume of hidden capital outflow overseas, taking 9th place in the world. In particular, according to estimates of the international organization TaxJusticeNetwork more than 167 billion dollars has been derived to the offshore zones for almost 25 years of independence of Ukraine. At the same time, because of the imperfection of tax legislation about 200 billion hrn, which were withdrawn to states with preferential tax treatment, turned out to be in the shadow in 2015. However, in spite of the losses incurred by the national economy because of the offshore zones, the legislation lacks effective mechanisms to react upon this occurrence. Therefore, the issue of legal regulation of capital outflow prevention from Ukraine and improvement of the taxation system of economic transactions of residents with offshore jurisdictions is now becoming ever more relevant.

In spite of quite long existence of offshore zones, there is still no frame of mind regarding the understanding of this concept and consolidating all its specific features. Ukrainian legislation does not contain a definition of this concept, there is only the list of offshore zones, approved by the Cabinet of Ministers of Ukraine. No consistent approach to this issue have been developed so far, both by foreign countries and the international community as a whole.

However, analyzing foreign experience of legislative regulation, opinions of scientists and positions of international organizations, we can distinguish the following main characteristics of offshore jurisdictions:

1) preferential tax treatment;
2) liberal currency and credit legislation that protects interests of investors and, accordingly, ultimate beneficiaries;
3) the system of double currency control (residents are subject to currency control and non-residents are not);
4) guarantee of compliance with financial and banking secrecy;
5) no currency restrictions;
6) ease of access to the foreign banking system;
7) modern means of communication (Internet communication) and a well-equipped network of electronic access, including to Bank resources;
8) liberal legal system;
9) implementation of the satisfaction of the individual needs of investors;
10) flexible requirements on documentation and financial reporting.

Based on the above characteristics, it is possible to define the concept of “offshore area” as a country or part of its territory, which characteristic is the creation of favorable financial and monetary and tax regulations, high level of banking and commercial secrecy guarantee, loyalty to government regulation and acceptable legal framework for business entities.
The most common methods of hidden withdrawal of capital to offshore areas include:
— price manipulation in foreign economic operations;
— registration of ownership of intangible assets in other countries;
— international leasing;
— agent agreements;
— loan agreements;
— internet trading, etc.
Following this line of reasoning, it is possible to suggest two ways of resistance to tax evasion and capital outflow abroad: radical and moderate. In the framework of the implementation of the first one, it is necessary to forbid interaction of the residents with offshore jurisdictions.
However, the prospects for implementation of this way are minimal, given the lack of political decisions and personal interest of those who must make such decision.

The second way is to develop and implement legal and economic mechanisms that would prevent the use of offshore jurisdictions for criminal purposes.
The key problem of the tax legislation, which creates favourable conditions for disinvestment, is the lack of regulation norms of controlled foreign companies. So, the domestic business entities create subsidiaries in offshore jurisdictions for the purpose of evasion of taxes and the withdrawal of their capital abroad. Profit from the activities of such enterprises are not taxed in Ukraine. But, in fact, residents are using these funds as personal income, although technically, they were not assessed in the form of dividends, were not included in the composition of their income and were not taken into account during imposition of taxes.

On this basis, it is necessary to include the profit from the activities of controlled foreign corporations to the income of individuals and legal entities that control them. At that, calculation of profit should be accomplished in accordance with domestic tax legislation and included to income in volume, that is proportionate to the ownership ratio of corporate rights of a resident of Ukraine.

Another option in the framework of realization of the second way of countercheck is implementation of fixed tax for residents, who interact with the offshore jurisdictions. Tax payers are the business entities registered in tax authorities as those who carry out operations with non-residents with offshore status. The tax assessment base will be the total amount of turnover of a business entity. The tax period will be one calendar year, with 5% tax rate. If a business entity without status of fixed tax payer implement a transaction with a non-resident with offshore status, such operation will be considered invalid, and the enterprise will be liable to a fine at a rate of 30% of the transaction amount.

Summing up the above, it is noteworthy that the real countermeasure for the processes of tax avoidance, money laundering and capital outflows abroad can only be a complex system of legal and economic mechanisms aimed at creating of tax barriers to operations with offshore jurisdictions.

Following mechanisms need to be introduced in the national legal system by amending tax legislation: to include the profit from the activities of controlled foreign corporations to the income of individuals and legal entities that control them, and to introduce a fixed tax system for residents, who interact with offshore jurisdictions.

The key aspects of business assets protection of economic entities with large capital turnover

Recently the protection of the business assets of our clients has become one of the key directions of Patriot Law Firm. Let’s take a closer look at the main characteristics and principles of the business assets protection of economic entities with large capital turnover.

The protection of business assets can be defined as economically pre-adjusted placement of Client’s capital, so that it is protected from external risks, does not attract too much attention of creditors and is not available to them, but at the same time, would be available and easily manageable for the owner of capital.

A successful business, especially in the Ukrainian realities, is a huge daily work, coupled with the risk 24/7. To reduce this risk, put it into frames of deliberate and considered conduct of business is impossible without competent legal audit.

Based on our experience, the main way of protection of the Client’s business assets is the application of the preventive protection system, namely:

The definition of the most favorable organizational and legal form of a business entity, depending on the type of activity. Lately the most economically and organizationally favorable organizational and legal form for big business is a private joint-stock company, holding, less often — group company, in which the capital is divided into shares and the possibility of regulation of management decisions by unauthorized persons is eliminated.

Building a secure and efficient corporate structure of legal entity considering the shareholding structure of the company. Special attention should be paid to the peculiarities of preparation of constituent documents. For example, when it comes to redistribution of responsibilities among the participating companies of the holding, the formation of the scheme of asset protection at the four corners: the company — the owner of the property, the operations conducting company, the management company, protection of business owners.

Reduction of tax risks. Quite an interesting task, which in the case of our client (a major company in the field of hotel industry) was solved by the specialists of our company by transferring the risk source to other businesses, and by outsourcing accounting, financial services and delegation of responsibility for tax risk of insurance organization.

Work on the privacy policy of the company, by introducing the element of confidentiality to the corporate culture of the company, holding of seminars with personnel and implementation of chapter of privacy policy for contractors to the contracts, reduction of the volume of information disclosed through the application of technological innovations, including categorized communications and special software.

Corporate restructuring of domestic assets with the help of non-resident companies. The most popular model of reducing the financial risks by attracting foreign companies with non-resident jurisdictions to the structure of ukrainian companies has been recently losing its effectiveness in case of ignorance of some aspects of work with offshore zones and lack of experience of dealing with such companies.
When the company achieves certain success and becomes consistently profitable, it is more likely to become an object of hostile takeover in realities of our country. The most dangerous mechanism of the transfer of ownership of the company to a new unfair owner is a hostile takeover.

The most common ways of hostile takeover are:
— the mass purchase of shares from minority shareholders (PJSC, OJSC) or founders’ participating interests in the charter capital of the company (LLC);
— purchase of debt obligations of the company, followed by his artificial bankruptcy in court;
— contestation over the ownership of the company’s fixed assets;
— bringing the company’s management on their side (financial interest, green mail);
— drawing of attention of regulatory agencies to activities of the company by providing, for instance, tax authorities with misleading information;
— shareholder register manipulation (displaying of nominee shareholder in shareholder registers, etc.).The specialists of our company offer our clients the following main preventive mechanisms of protection of business against asset-grabbing:
1) development of a well-considered and stable corporate and management structure (protection of insideinformation, legitimation of the company’s activities, creation of an effective structure of corporate management);
2) control over creditor indebtedness (duediligence of all projects and contractors of the company);
3) identification of problematic aspects of the company and their protection in different areas: legal, judicial, economic, PR — effect of using the media, power, administrative and corporate factor.

A lot of our clients — business owners, given the difficult economic situation in our country and the need to quickly and unconventionally respond to changes in the external environment, come to the conclusion about the necessity of business restructuring.

Restructuring cannot be defined as narrow a concept of the company transformation. It is a complex process that has many directions, depending on the particular task and industry characteristics of the business. The restructuring process consists of improvement of the business management system, economic and financial policy of the enterprise, marketing system, operating activities, human resource management, etc.

Business owners, making a decision on the restructuring of the company, can pursue different aims:
— consolidation of business in the management of one owner;
— simplification of corporate structure and improving management efficiency and transparency of the company;
— improving the competitiveness in the domestic market;
— entering the international arena (transnational level);
— value creation;
— increasing of investment (financial) attractiveness for foreign investors.

In the process of restructuring, reorganization by accession, merger or de-merger of businesses may occur, or a package of restructuring measures for the purpose of steering the company out of economic crisis and further systematic development of the business may be taken.

Our company provides complex legal support of business assets protection of our Clients, ensuring each individual approach, which is contained in the joint search for weaknesses that can cause problems, clear definition of tasks and providing them with an appropriate for the Customer way of solution.

Properly constructed plan for asset protection, offered by the professionals of our company ensures the creation of such system of business operation, in which the cost of its asset-grabbing by the aggressor and loss risk of “business reputation” of the raider will be extremely high, and the legality of passing of title to the business as the object of raid will be significantly hindered or even impossible, that will considerably increase the security level of your business.

What is liquidation? Step-by-step algorithm

Practice shows that to open a company is quite easy and simple, but to close the business can be quite troublesome. Difficult economic situation, sometimes irrational tax legislation, not always consistent revenue bodies administering and quite often unwillingness of business owners to conduct it transparently creates a “shadowing” of almost all spheres of business, and leads to the fact that many entrepreneurs today are considering of reorganizing or closing of a business.

The procedure of liquidation of a business entity is primarily determined by its financial condition. If a current assets ratio of a legal entity is positive or neutral and it has no debts to creditors, it can be liquidated by the founders. But if the company has no funds to pay all creditors or has debts to the budget, it shall be liquidated through bankruptcy.

A significant experience in bankruptcy of professionals of PATRIOT Law Firm allows for the conclusion that in the process of liquidation and bankruptcy arise many issues that are not directly legislated, and only practical knowledge of lawyers who have repeatedly dealt with the liquidation of enterprises, allows to avoid all the pitfalls of liquidation.

It should be noted that legal gaps are not the only problem that the owners of the companies in liquidation have to face. Each of such businessmen wants to close their company safely, quickly and with no trouble, but the system of regulatory bodies’ operation often makes it impossible to carry out the liquidation in a timely manner. Moreover, as the result of tax audit some legal violations can be detected, that can be the reason for bringing a Director/chief accountant to responsibility, up to criminal liability.

In order not to delay the already time-consuming process of dissolution, and not to complicate your life with unnecessary worries about inspections, you should contact suitably qualified lawyers who will minimize risks and carry out the liquidation quickly and efficiently.

Before starting the liquidation procedure, a thorough analysis, audit of the financial condition of the company should be conducted to develop a detailed plan of actions that will need to be taken during liquidation as well as before it. It is also necessary to consider the fact that the legislation contains only a general plan and sequence of liquidation measures, and in addition, there are many particularities connected with the specificity of company’s operations or legal form of business entity, for example, joint stock companies, insurance companies, public organizations, asset management companies. So if we are not talking about LLC that has not conducted any activities and has been existing for six months, you need to understand that each case of liquidation is unique and requires a well-developed strategy and an individual approach.

In order to have a general idea of the elimination procedure, let us consider its main aspects.
Legal consequence of the business entity liquidation is, in fact, a termination of its rights and obligations to the state and contractors without legal succession. Proof that the liquidation was successful and the business entity no longer exists is a mark in USR about the liquidation of the enterprise and its removal from a register.

The plan of “common” actions in the process of liquidation of a business entity looks like this:

1. Making a decision for the liquidation of the company by its founder. For this purpose, the general meeting of shareholders is held, where the liquidator (liquidation commission) shall be elected, that is, the one who will actually perform actions on the liquidation of the company. The decisions taken by the general meeting of shareholders are recorded in the protocol. After the liquidator (usually a former Director) is elected, he exercises all the powers and authority of the Executive body of the company.
The main tasks of the liquidator are confined to: assessment of the company’s property, the specification of debtors and creditors of the company, taking actions to settle debts of the legal entity to third parties, drafting of the provisional statement of affairs.

2. Submission of the minutes of the General meeting of founders copy to State Registrar, for a record about termination of company business to be made in USR.

3. Appealing to the tax agency, pension fund, social insurance fund with petitions about the company liquidation for these authorities to make inspections. The result of such inspections should be a certificate of tax clearance and deregistration of a legal entitiy. Appealing to the regulatory authorities, if any licences, certificates, etc. has been issued to the company.

4. Notification to creditors and debtors of the liquidation of the company, determination of periods and process of creditors’ appeal with their requirements to the company in process of liquidation.

5. The closure of bank accounts that will not be used in the liquidation process.
6. Conduct of assessment and inventory of the legal entity’s property.

7. The dismissal of employees who work for a company that is in the process of liquidation in compliance with all procedural requirements (considering prohibition of dismissal of employees on maternity leave, the notification employment centre of dismissal of employees).

8. The drafting and approval of the minutes of the General meeting of owners of interim liquidation balance, which reflects debts and cost of property of the enterprise which is being liquidated.

9. Sale of the company’s in order to accumulate funds for settlement with creditors, payment of debts to creditors that filed their claims within the prescribed period and are registered in the list of creditors in order of priority.

10. The drafting and approval of the minutes of the General meeting of owners of the liquidation balance after debt repayment.

11. The division of property or funds remaining after payments to creditors among the founders of the company, that is being liquidated.

12. Transfer of documents on legal entity to the archive.

Summing up, it should be noted that when making a decision of business liquidation you need to take into account the following aspects:
• in general, for LLC and single proprietor firm liquidation procedure takes 6-12 months and this process is quite laborious and time-consuming;
• dissolution requires additional financing, namely: the payment of state fees and charges, interest intermediation, payment for publication, mailing of the letters, obtaining briefing papers;
• engaging external experts with experience of liquidation procedures will greatly simplify and speed up the whole process and will minimize the legal risks that will make liquidation easy and

How not to let money go down the wind or buy housing safely

Each person or family (hereinafter – the Buyer) wants to have their own housing. When a buyer finds a housing he likes, and above all at appropriate price, he forgets about the main thing – about the hidden catch that unfair development companies (hereinafter – the Developer) could have prepared for him.

In this article you will learn how to check the Developer, insure yourself from a bad purchase and arrange for your dream of own house not to turn into a nightmare.
Nowadays it’s an open secret that the task of the Developer is profit-making (property sale on the most favourable terms), and the task of the Buyer is to get housing (purchase of an apartment on beneficial and safe terms).

In order that you don’t have problems with the newly acquired housing, you have to do the following:

1. Check the “history” of the Developer
First of all, you need to check out the Developer in EDRPOU (Ukrainian “Unified State Register of Businesses and Organizations”). Here you need to look at the Director, if he is a legal entity in the process of termination, if there are any enforcement proceedings opened against the legal entity, creation date (the longer the legal entity exists, the better) and share capital (the more capital, the better).
Then, you need to check the Developer for debt owed to tax agency. Tax clearance indicates the reliability of the Developer.
Also you need to check the Developer in Unified State Register of Court Decisions. In the register you need to find information if there are any legal proceedings being conducted against the Developer and the matter of those proceedings.
You need to “google” some reviews about the Developer, what projects he has implemented and how successful they are. Several objects under construction that have not been commissioned yet and are being constructed simultaneous can be a reason for distrust of the Developer.

2. Check the land parcel documents
You need to check the Developer’s documents confirming the right of ownership, right of permanent use or lease of a land plot, where the construction will be conducted.
If the Developer rents the land plot, then you need to clarify the date of the lease end. This is very important given that if the Developer does not have time to complete a house before the end of the lease, it is possible that it will not be extended and a house will not be completed.

3. Check out the building documents
The main document that the Developer should have to begin construction activities is the construction permit, issued by the State Architectural and Construction Inspectorate. Without such permit it is impossible to start construction.
Also, the Contractor must be licensed for construction. Here you should check if the license period has expired.
The Customer must have the technical conditions for communication lines, the project and its expertise.
You need to pay attention to duration of all documents, according to construction period.

4. Acquire information about the contractors who will carry out the construction
You need to check the contractors in EDRPOU. There you also need to check the Director, if a legal entity is in the process of termination, creation date (the longer a legal entity exists, the better) and share capital (the more it is, the better).
Also, you need to check contractors in the Unified State Register of Court Decisions. In the register you need to check if there are any legal proceedings being conducted against the Contractor, and the matter of those proceedings.

5. Analyse the price and compare it with the market price
The buyer should remember that low prices are often offered at the beginning of construction (when only a foundation pit for the object is ready) or the Developer is unstable. The reason for low price per square meter can be serious problems of the Developer, that can lead to building halt or even mean that the Developer has not originally planned to bring it to fruition.

6. Visit the construction site
It takes a few times to visit the construction site. You should pay special attention to the number of workers and equipment present on the construction site. This will let you estimate if the Customer will meet deadline and if the house will be built at all.

7. Whom to sign a contract with and what type of a contract exactly to choose
The buyer has to choose a contract (method) and whom to sign it with.
Nowadays the most secure method is the purchase of future housing through the Construction Financing Fund (hereinafter – CFF). The presence of the third party – the Bank in CFF will let you feel safe and more confident as the Bank guarantees availability of funds for completion and depending on the type of CFF exercises control over the activities of the Developer. Before you become an investor of the construction financing fund, check the Fund Manager (the Bank), as it affects reliability of the method. Thus, the participation of a large bank as the Manager of the Fund can be a guarantee that you will receive the desired housing.
Also, to obtain housing safe enough, you may become a member of the housing association.

Another method of house-buying is the conclusion of sale and purchase agreement in the already built house. Although it is significantly more expensive than the above mentioned methods, it is safer as you already see what you buy.
There are other doubtfully legal methods of investment: a preliminary agreement, mortgage, assignment agreement – however, we do not recommend to get mixed up with them as they may cause you lots of problems.

From practical experience we may say that most of buyers do not read the contracts they sign with the Developer (hereinafter – the Agreement) to the end. Also, people are not familiar with the construction industry and are often unable to properly study the agreement and provide its quality legal evaluation. To keep the Buyer from problems in the future, our Patriot Law Firm advises to contact professional lawyers, who will accompany the Buyer during a house-buying.

Settling accounts with the Customer should be implemented by bank transfer, because the entire payment history is being saved. If you are asked to pay with cash or to bypass the Bank (to transfer funds to the account of unknown company with unknown requisites), then it is better to continue to look for housing and not to deal with this Customer.

The essential terms that a contract must contain:

  • The contract should specify the section and floor where an apartment you buy is located;
  • There should also be total apartment space and its number, the cost of one square meter;
  • Operation due and commissioning dates;
  • An apartment building plan;
  • Order of payment, terms, stages and amount of payments;
  • A list of all the documents which a construction of a project by the Developer is based on;
  • Description of an apartment;
  • Liability of parties and dispute settlement procedure;
  • Contract duration and requisites of the parties.
Some aspects of economic transactions taxation of residents with offshore jurisdictions

Recently offshore zones have become one of the main matters of discussion in the world economy.
In fact, it is all right, when business entities use offshore companies, as they are not officially prohibited at the legislative level.

However, apart from accessibility to international financial markets, the use of offshore jurisdictions by Ukrainian companies often relates to the laundering of income obtained not quite legally, to tax evasion and respectively capital outflow from the national economy. For today, Ukraine remains one of the world’s “leaders” in terms of volume of hidden capital outflow overseas, taking 9th place in the world. In particular, according to estimates of the international organization TaxJusticeNetwork more than 167 billion dollars has been derived to the offshore zones for almost 25 years of independence of Ukraine. At the same time, because of the imperfection of tax legislation about 200 billion hrn, which were withdrawn to states with preferential tax treatment, turned out to be in the shadow in 2015. However, in spite of the losses incurred by the national economy because of the offshore zones, the legislation lacks effective mechanisms to react upon this occurrence. Therefore, the issue of legal regulation of capital outflow prevention from Ukraine and improvement of the taxation system of economic transactions of residents with offshore jurisdictions is now becoming ever more relevant.

In spite of quite long existence of offshore zones, there is still no frame of mind regarding the understanding of this concept and consolidating all its specific features. Ukrainian legislation does not contain a definition of this concept, there is only the list of offshore zones, approved by the Cabinet of Ministers of Ukraine. No consistent approach to this issue have been developed so far, both by foreign countries and the international community as a whole.

However, analyzing foreign experience of legislative regulation, opinions of scientists and positions of international organizations, we can distinguish the following main characteristics of offshore jurisdictions:

1) preferential tax treatment;
2) liberal currency and credit legislation that protects interests of investors and, accordingly, ultimate beneficiaries;
3) the system of double currency control (residents are subject to currency control and non-residents are not);
4) guarantee of compliance with financial and banking secrecy;
5) no currency restrictions;
6) ease of access to the foreign banking system;
7) modern means of communication (Internet communication) and a well-equipped network of electronic access, including to Bank resources;
8) liberal legal system;
9) implementation of the satisfaction of the individual needs of investors;
10) flexible requirements on documentation and financial reporting.

Based on the above characteristics, it is possible to define the concept of “offshore area” as a country or part of its territory, which characteristic is the creation of favorable financial and monetary and tax regulations, high level of banking and commercial secrecy guarantee, loyalty to government regulation and acceptable legal framework for business entities.
The most common methods of hidden withdrawal of capital to offshore areas include:
— price manipulation in foreign economic operations;
— registration of ownership of intangible assets in other countries;
— international leasing;
— agent agreements;
— loan agreements;
— internet trading, etc.
Following this line of reasoning, it is possible to suggest two ways of resistance to tax evasion and capital outflow abroad: radical and moderate. In the framework of the implementation of the first one, it is necessary to forbid interaction of the residents with offshore jurisdictions.
However, the prospects for implementation of this way are minimal, given the lack of political decisions and personal interest of those who must make such decision.

The second way is to develop and implement legal and economic mechanisms that would prevent the use of offshore jurisdictions for criminal purposes.
The key problem of the tax legislation, which creates favourable conditions for disinvestment, is the lack of regulation norms of controlled foreign companies. So, the domestic business entities create subsidiaries in offshore jurisdictions for the purpose of evasion of taxes and the withdrawal of their capital abroad. Profit from the activities of such enterprises are not taxed in Ukraine. But, in fact, residents are using these funds as personal income, although technically, they were not assessed in the form of dividends, were not included in the composition of their income and were not taken into account during imposition of taxes.

On this basis, it is necessary to include the profit from the activities of controlled foreign corporations to the income of individuals and legal entities that control them. At that, calculation of profit should be accomplished in accordance with domestic tax legislation and included to income in volume, that is proportionate to the ownership ratio of corporate rights of a resident of Ukraine.

Another option in the framework of realization of the second way of countercheck is implementation of fixed tax for residents, who interact with the offshore jurisdictions. Tax payers are the business entities registered in tax authorities as those who carry out operations with non-residents with offshore status. The tax assessment base will be the total amount of turnover of a business entity. The tax period will be one calendar year, with 5% tax rate. If a business entity without status of fixed tax payer implement a transaction with a non-resident with offshore status, such operation will be considered invalid, and the enterprise will be liable to a fine at a rate of 30% of the transaction amount.

Summing up the above, it is noteworthy that the real countermeasure for the processes of tax avoidance, money laundering and capital outflows abroad can only be a complex system of legal and economic mechanisms aimed at creating of tax barriers to operations with offshore jurisdictions.

Following mechanisms need to be introduced in the national legal system by amending tax legislation: to include the profit from the activities of controlled foreign corporations to the income of individuals and legal entities that control them, and to introduce a fixed tax system for residents, who interact with offshore jurisdictions.