How to check the reliability of the counterparty?

In the process of conducting business, the entrepreneur has to cooperate with various contractors.

Sometimes the mere fact of working with an unreliable counterparty can create risks or even have negative consequences for the entrepreneur's business. Inspections by regulatory and law enforcement agencies, receivables and other risks can become a reality for an entrepreneur who works with an unreliable counterparty.

To avoid unpleasant consequences that may accompany such cooperation, it is necessary to check the reliability of the counterparty in advance.

You can do this yourself with open and free 😎 sources.

Next is a list of such sources, explain what information can be obtained from them and what conclusions can be drawn from it.

Unified State Register of Legal Entities, Individual Entrepreneurs and Public Associations

This is a register that contains up-to-date information about the counterparty, starting from identification data and ending with the economic condition of the counterparty (liquidation, bankruptcy).

The register is available at the link https://usr.minjust.gov.ua/content/free-search .

What to look for?

In general, we recommend comparing all data provided by the counterparty with this register, because it contains all the relevant information. However, there is some information that deserves special attention.

Activities (NACE). A natural or legal person may carry out only those activities that are specified in the register. Therefore, if the counterparty offers certain services or goods, it is worth checking in the register whether it can provide such services or sell goods at all.

The risk in this case is possible additional checks from the tax, and no one needs them😉.

Leader and signatories. The register shall contain information on persons who may act on behalf of a legal entity without a power of attorney. This may be the head and another person specified in the register (signatory). If the contract is signed on behalf of the counterparty by a person who is not the head or who is not listed in the register, his authority to sign the contract must be confirmed by a power of attorney from the head.

Also, the powers of the leader may be limited by the amount or type of contracts that he may enter into without the consent of the general meeting of participants. Such restriction must be indicated in the register or in the charter of the legal entity. For example, a director cannot enter into contracts with a price exceeding UAH 1 million. In this case, the director must additionally provide a copy of the minutes of the general meeting of participants, where the participants agree to the director to enter into such an agreement.

If the contract is signed by an unauthorized person, or the manager has exceeded his authority, such a contract may be declared invalid. In this case, the obligation to verify the powers of the signatory of the contract rests with the opposite party.

So be careful!

Economic condition. The register shall indicate whether the counterparty is in a state of liquidation or bankruptcy. Obviously, no one will want to work with a contractor who will soon cease its activities.

Unified state register of court decisions

The register contains court decisions directly concerning the counterparty or litigation in which he participated as a third party or where his name was mentioned.

That is, through the register you can find out the entire judicial history of the counterparty. For example, whether he violates the terms of contracts, whether he is not involved in fictitious economic activities, whether he pays taxes on time and prepares tax reports.

You should also pay attention to the presence of criminal proceedings in the counterparty, where he would be seized documents and / or property. This may indicate an interest on the part of law enforcement and fiscal authorities in all those with whom this contractor cooperates.

At the same time, you do not need to be afraid of a large number of litigations with the counterparty. Situations are different. Often companies are simply mentioned in court decisions, especially in criminal proceedings, but this does not indicate the riskiness of the counterparty. Therefore, it is necessary to analyze the essence of the court decision and look at the entire history of the case or criminal proceedings.

How to check. Follow the link https://reyestr.court.gov.ua/. In the search form you need to enter the name of the counterparty (preferably in quotation marks) or its identification code. When sorting, you need to select "descending" to see the latest court decisions first. You can also choose the form of proceedings (civil, criminal, commercial, administrative).

Automated system of enforcement proceedings

All open and completed enforcement proceedings against the counterparty can be found in this register at the link https://asvpweb.minjust.gov.ua/.

Completed enforcement proceedings may indicate how often the counterparty is charged, which may indicate its insolvency or bad faith. Open proceedings can affect the current economic activity of the counterparty - the executor may seize the accounts and property of the counterparty. As a result, the counterparty will not be able to transfer funds or use the seized property in its activities.

Tax debt

The presence of a tax debt indicates non-payment of taxes by the counterparty, which in turn may also indicate its insolvency. It should be understood that first of all the counterparty must repay the tax debt and only then pay its obligations to others.

Also, the presence of a tax debt leads to a tax lien on the property of the counterparty, which is prohibited to sell until such time as such collateral is removed.

You can check for tax debt here https://tax.gov.ua/businesspartner.

Register of single tax and VAT payers

These are two separate registers that allow you to see which taxpayer is the counterparty and check the validity of the registration of the counterparty as such a payer. There are situations when the counterparty declares that he is a VAT payer, but cannot register the tax invoice, as it turns out that his registration as a VAT payer has been canceled. In this case, the entrepreneur loses the right to a tax credit.

When checking the register of single tax payers, you should pay attention to the group of the single tax of the counterparty. The single taxpayer of groups 1 and 2 may not provide services or sell goods to a taxpayer who works on the general taxation system.

The register of VAT payers is available at the following link https://cabinet.tax.gov.ua/registers/pdv, and the register of single tax payers - https://cabinet.tax.gov.ua/registers/edpod.

Checking the counterparty for these registers will allow to conclude the presence or absence of risks from cooperation with him, as well as provide an opportunity to predict such risks.

Of course, checking a counterparty can take some time. However, this can help save money and prevent additional inspections by law enforcement and regulatory agencies. At the same time, this work can always be entrusted to professionals 😉.