That Would Also Do: Harmful Tips while Working with Counterparties

Critical thinking is a useful decision-making tool that is "exclusively" inherent in people, unlike in computers. The ability to question information is the basis of creativity, analysis, finding new solutions, including those in business. In this article we will consider "alternative" approaches to working with counterparties and business intelligence. What if you…

1. Do not check the status of a company.

⚡️What do you risk:

Failure to fulfill obligations by a counterparty, negative financial and tax consequences, litigations up to criminal cases.

📑 Arguments:

According to Articles 91 and 92 of the Civil Code of Ukraine, legal capacity of a legal entity arises from the moment of its state registration and ceases from the date of entry of a record of its termination in the Unified State Register. Legal relations (including conclusion and execution of agreements) with a non-existent entity are de jure impossible. Any activity of such an entity is illegal, and the concluded agreements are invalid.

2. Ignore tax and fee debts.

⚡️What do you risk:

Partnership with such counterparties may attract the attention of the state supervision bodies. And in general, it is doubtful that a company or entrepreneur that does not pay on time to the accounts of the state regulator will become a reliable partner.

📑 Arguments:

If a counterparty does not submit reports to the fiscal and statistical authorities, this may indicate that it is a company with a sign of fictitiousness, including a shell company (Resolution № 65 of the Board of the National Bank of Ukraine of May 19, 2020).

Failure to submit reports is a reason for a thorough inspection by the state supervision bodies, and may indicate motives for the concealment of data about financial activity.

3. Do not pay attention to the involvement in fraud and corruption offences.

⚡️ What do you risk:

Fraudsters will try to apply their "methods" to your transactions as well.

And if you work with international companies, this is a reason for the termination of cooperation. Large companies actively use compliance procedures and do not work with those involved in criminal cases.

4. Turn a blind eye to the absence of a licence.

⚡️ What do you risk:

In addition to financial risks, you can lose a profitable partnership or even trust in the market. The latter complicates access to international markets. After all, companies abroad check their counterparties not only for the legality of activity but also for the transparency of their partners.

📑 Arguments:

Ukrainian entrepreneurs need a licence in 30+ business fields. This is established by the Law of Ukraine "On Licensing of Economic Activity", and doing business in these fields without a licence is criminally punishable.

5. Do not take into account property.

⚡️ What do you risk:

 The assets of a company are a guarantee of its solvency. In the event of bankruptcy you will have nothing to collect from the business partner who has nothing "to its name", that is, it does not own real estate, plots of land, transport, etc.

6. Underestimate the involvement in financial-industrial groups.

⚡️ What do you risk:

A financial-industrial group (FIG) is an association of several enterprises that interact with each other economically and financially. The activities of all enterprises within one FIG are controlled by the entrepreneurs who have brought together their assets.

Companies belonging to financial-industrial groups are exposed to the influence of those individuals who control them.

7. Neglect to check links.

⚡️What do you risk:

Your agreements will depend not on you but on the companies and people who can actually influence your counterparty’s decisions.

📑 Arguments:

The legislation of Ukraine and other countries of the world pays close attention to the definition of affiliation within the anti-monopoly legislation and laws on unfair competition.

Particular attention should be paid to checking of the enterprises and individuals that are related to the partner and can influence management decisions in the company.

8. Ignore executives and beneficiaries.

⚡️What do you risk:

Imagine that a representative of a counterparty uses forged/stolen documents for an agreement. Or s/he hides involvement in fictitious companies, linkis with other dubious characters. In such a way the partner draws you into risky cooperation.

And in case of presence of links with political forces or national politically exposed persons s/he can use the "administrative resource".

And This Is Just Trifles!

There are factors that are not paid enough attention to while choosing a partner, but they can affect the success of all cooperation. For example:

• Nature of types of activity. If the main type of activity of a company is "general", it may indicate that the activity of the counterparty is not aimed at achieving real results.

The law also identifies risky types of activity that also need to be considered.

• Number of codes NACE/KVED (classifier of types of economic activity). A long list of activities is one of the signs of fictitiousness.

• Company history. There are no accidental events in what has happened to a company during its existence. Consider changes in a company as a sign of peculiarities of its economic activity. Such changes may indicate possible risks of cooperation.

• Term of existence of a company. A short period of existence that does not exceed a tax reporting period (for example, a year or a quarter) may indicate the avoidance of tax audits.

These risks can be avoided if you check a counterparty at the initial stage of cooperation before signing an agreement. All this information can be found in YouControl in a few minutes. Use this list of harmful tips to keep in mind the cost of negligence in business inspections.

We have also written about who in the company can be entrusted with checking of counterparties.