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Legal Advice

I would like to buy a company in Latvia. The seller, who owns 100% of the equity capital shares, wants to receive the purchase price at the time of signing purchase contract and other documents. But I’m worried about the transfer of ownership rights after the purchase price is paid. What if for some reason I won’t be registered in the Register of Enterprises as the new owner or the previous member of the board won’t be recalled? Is there a way to avoid such risks when buying a company? 21.04.2010
In order to reduce risks the parties may open an escrow account in a bank – a service, which is widely used for immovable property transactions. In this case the procedure will be as following:
Step 1. The parties sign a purchase contract, specifying all the essential elements, that is, the subject-matter of the purchase, the procedure of the transaction, as well as the procedure of paying the price, the order for recalling the seller from the position of member of the board and terms for fulfilling obligations of the parties.
Nevertheless the buyer shall also draw attention to financial obligations and the condition of the company he wishes to buy, (i.e. creditors, debtors, off-balance sheet liabilities, fixed assets, clients, etc.), as well as the liability of the seller for the nonconformity of the provided guarantees.
Step 2. On the basis of the concluded purchase contract the parties and the bank sign a tripartite agreement in which they agree on the necessay documents and terms and conditions, as well as the procedure for the submission of such documents and the order for making the payment of the purchase price.
Step 3. The buyer puts the purchase price into an escrow account and presents a document to the seller in order to prove that he made the payment.
Step 4. The parties sign necessary documents, which are needed for the registration of the buyer’s ownership rights and other changes (recall of the seller from the position of member of the board, etc.).
Step 5. The seller or the buyer shall carry out the registration of the relevant changes in the Register of Enterprises (this duty can be entrusted to the seller so that the buyer wouldn’t be accused of violating the contract in case if the Register of Enterprises will refuse to register the changes due to some reasons, however, the buyer also can carry out the registration if he wants to control the process himself).
Step 6. After the registration of the changes the seller submits the proof of registration and other necessary documents to the bank on the basis of delivery and acceptance deed, whereafter the bank transfers the purchase price to the seller’s account.

Alexander Lenkovsky

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