Business under seven seals: how we helped an entrepreneur to find the “keys” and prepare the company for sale
Let's go back a few years ago. We were contacted by the owner of a group of companies specializing in car repair. He required a legal entity that could participate in the support program and receive a grant. The nuance was that participation required the applicant's total turnover, including all affiliates, to be less than 10,000,000 rubles. Our client understood that he did not pass this parameter because his company's turnover over the last three years has averaged 150,000,000 rubles per year. The only way to join is to leave the affiliation.
Our client had a partner who was willing to help and register the company. However, the phrase “register the company” implied that the partner had complete legal control over the business, which he could easily sell, or give as a gift, give to his wife in the event of a divorce, and so on. And, because the money to finance the company came from our client, and the business plan assumed that in a few years the company would reach a decent turnover, resulting in an increase in the market value of the business from a nominal value of $10,000 to several million. There were high risks of putting the company under complete control of a friend. The client approached us with the request to minimize these risks.
We met the request with a bang. We prepared an option agreement, a pledge agreement, and a corporate agreement that imposed a wide range of restrictions on the partner's ability to sell shares in the business and make key decisions. Violations led to significant penalties.
And now let’s go back to our time. During last two years, the new company expanded significantly, and other entrepreneurs in the market became interested in it. Last fall, businessmen from Moscow made a commercial proposal to our client. One of the advantages was a reasonable amount of money, which they offered. And one of the disadvantages is the short time frame in which the transaction was expected to be completed. Our client understood perfectly well that before selling the company, all the encumbrances that we imposed when we opened it should be removed. In fact, the client approached us with this question.
In addition to the tight deadlines, there was another problem that our client was not in Russia. This was very important because all transactions were made with a notary. And in such cases you need to appear in person to sign papers or send a representative using a notarized power of attorney.
Taking into account all the factors, we chose the following strategy. Our first priority was receiving power of attorney from our client. It was decided to have this document certified by the Russian consulate in the country where our client was during the time of the transaction.
Next, we started removing the pledge. We created a termination agreement, notarized it, and submitted it to the tax office for registration. We were lucky because the tax authorities recorded the termination of the pledge on the first try (Registration of pledges is a rare procedure that tax professionals encounter, so questions frequently arise)
Along with the pledge, we terminated the corporate agreement and notified the tax authority.
The only encumbrance left was the option. The option is structured in such a way that the owner of the shares (in our case, the client's partner) promises the buyer (he is our client) that he will conclude a purchase and sale agreement and transfer the shares at any time upon the buyer's request.
The benefit of such a document is that when the buyer wants to receive shares, he does not need to find the owner and invite him to the notary. The buyer personally transfers the shares. In our case, we sent a representative to the notary with a power of attorney. The goal was achieved: the encumbrances were removed, the share was returned to its rightful owner, and now it can be sold.
P.S. In addition to removing encumbrances, the main transaction was prepared and completed successfully.