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Research

“Headless” Companies: Legal Entities and Individual Entrepreneurs without Heads and Types of Activity Still Exist in Ukraine

31 January 2020

“Headless” Companies: Legal Entities and Individual Entrepreneurs without Heads and Types of Activity Still Exist in Ukraine

Analysts of the YouControl system detected tens of thousands of companies and private entrepreneurs without an official head, owner or even KVED (classifier of types of economic activity).

Imagine a car rushing along the highway, but there is no driver behind the wheel. You can get in its way. Either in the oncoming lane or the passenger seat, but the result will be unpredictable in any case. It is about as risky to work with companies that do not have the head. And such companies can at present do business, conclude contracts and incur potential risks for their business partners.

Analysts of the YouControl system have detected that as of today in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (USR) there are records of approximately 66 thous. individual entrepreneurs whose type of activity (KVED) is not indicated. And another 99 thous. legal entities have not registered one or more key information: the name of the head, owner and/or KVED.

An interesting feature of such companies is the long term of existence and the legal status “is not in the process of termination, the certificate of state registration is invalid”.

Why Do Companies Conceal Information?

The story of this question was shared by Oleksandr Riabets, the Chairman of the Board of the Union of Lawyers of Odesa Region, the General Partner at “Legal Partner”. According to him, in 2003 the law “On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations” was adopted, under it within 2004-2005 state registrars had to replace old certificates with the new ones of a uniform standard. However many entrepreneurs did not apply for the replacement. And since 2012 the relevant commission of the Ministry of Justice has made an inventory.

All legal entities and individual entrepreneurs, formed and registered before July 1, 2004, were required to submit to the state registrar a registration card to include data about them in the USR. All those who failed to do this received the record: “the certificate of state registration is invalid”, as they still have certificates of an old standard. At the same time the wording “is not in the process of termination” remained, as no decision to liquidate or reorganize this enterprise was made.

Is It Allowed to Cooperate with Such Counterparties?

If the counterparty has not been able to update data on itself in the USR for so many years, it is worth considering the prospects of cooperation with it.

If we see such a profile, it must be understood that the enterprise or the private entrepreneur has the right to act – to conclude agreements, to pay taxes. They were formed under the old legislation which was in force at that time. Of course, many lawyers can argue with me about this paragraph, because this is already a controversial issue for discussing in the scientific legal circles,Oleksandr Riabets commented. – Whether it is worth cooperating with this enterprise is another question. I personally would not recommend it. It is quite possible that this counterparty may have taxes and fees liabilities, etc. Most often enterprises that actually work do not have such a record. It is not excluded that if you are contacted by such counterparties, they can be frauds who use the documents and the seal of the enterprise. And here not only financial losses but also the attention from the law enforcement agencies can be attracted.”

How to Check a Counterparty Online?

In the YouControl profile, based on more than 60 open sources, the express analysis is performed automatically. It points at factors that need special attention before starting cooperation with a counterparty. Now there are up to 72 factors by which the YouControl system checks companies, three more are added:

• absence of the head;

• absence of KVED;

• absence of the owner.

The profile of every company has the section “Express Analysis”. If one of the risk factors relates to the company, it will be shown in this section.

Read more: Methodology of the Express Analysis

The mission of the express analysis and the YouControl system in general is to help you avoid problematic cooperation, to warn you in time about possible risks and doubtful facts in the economic activity of a potential business partner. The complete profile forms an objective idea of the activity of a company allowing you to make balanced decisions about cooperation.

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