Checking for good business practice

Good business practice of a prospective business partner is guarantee of its capability to fulfill obligations and evidence of the fact that it intends to do that.

Checking for good faith is the applicable statutory requirement. Legal entities, individual entrepreneurs are obliged to check parties of the deal before its conclusion.

Checking for good faith is also necessary for financial risks estimation. A business partner with good reputation, keeping accounts carefully, is more interesting for a long-term cooperation, than a new company that has problems with the tax office.

Good business practice criteria

Legal address. Registration of a company at the address of its location is one of the signs of good faith. The obvious bad sign is the mass registration address of a legal entity, and it often indicates a short-lived company.

Data on a legal entity/individual entrepreneur. For good faith estimation it is necessary to check if incorporation documents are all right, if a company/entrepreneur is registered at the tax authority, if it is not a bankrupt.

Data on legal proceedings. Obtaining and analysis of these data is required both for confirming business partner’s good practice and for checking its business reputation. If your prospective business partner is regularly taken to court, this points to the fact that it does not take its liabilities seriously or is not able to fulfill them. When a party to the deal being analyzed always has a legal proceeding with suppliers/customers, it lets make a conclusion on steep demands and/or inability to choose business partners.

Checking business partner’s good faith is a multiple factor analysis that must be made with the use of comprehensive and reliable data.

Ways of checking

The most obvious checking method is analysis of materials you request from a prospective business partner before a deal. The set of documents for good faith estimation includes:

  • the registration certificate, confirmation of registration with the tax authority;

  • the state register extract certified by tax authorities;

  • corporate charter;

  • director and chief accountant appointment papers;

  • photocopies of director’s and chief accountant’s passport;

  • a copy of annual accounting report that must have confirmation visa of the tax authority;

  • tax paid statement issued by the tax authority;

  • a certified copy of a license, other permitting documents (if partner’s activity requires licensing);

  • a statement from a business partner confirming a free form of company’s staff, the quantity of staff positions;

  • a statement confirming debts to legal, physical entities and the property being the subject-matter of legal cases;

  • a statement confirming participation in court proceedings over the last three years with indication of the subject-matter, parties to the case and the court decision.

When considering the mentioned documents set first of all you should check a certificate, state register extract, statement issued by the tax authority and other official documents. If there is no doubt about them, the letters of partner’s good faith are studied (statements in free form). Judging by debts and their amounts, statistics of court proceedings it is possible to make conclusions on business reputation of a legal entity or individual entrepreneur.

This checking method has many disadvantages. Firstly, a party to the contract has the right to refuse to present materials – according to the law it is not obliged to do that. Refusal does not always indicate dishonesty of a legal entity or entrepreneur. The reason may lie in the fact that a prospective partner is not so interested in cooperation like you.

Secondly, a company collected the set of documents for good faith checking at your request may expect the same from you. In that case efforts and duration of preliminary stage of the deal will increase: you will need not only to analyze partner’s materials, but also to prepare documents for him.

Thirdly, this method does not give reasonably accurate estimation. Most likely, but not for sure, this checking for good faith will secure you from claims on the part of supervisory authorities, however it will not provide you with reliable protection against fraud. Copies of primary documents may occur to be forged, and it is difficult to detect this fact.

In order to get accurate information you should use official sources:

  1. Federal tax service website – data on a legal entity/entrepreneur – extract from the EGRUL/EGRIP, information on amendments record, made decisions on charter capital reduction, reorganization, liquidation and so on.

  2. Unified federal register website – you should be convinced that a prospective partner is not a bankrupt. Here it is possible to specify net asset value of a joint-stock company.

  3. Federal bailiff service website – search by data bank, in order to find out if there is enforcement proceeding in respect of a company or entrepreneur being the point of your interest.

  4. Federal state statistics service (Rosstat) – for getting annual accounting report.

  5. Local tax office (by registration address of a partner) – for specifying the data on a legal entity/entrepreneur, and also on company’s director and executives authorized to sign.

  6. Websites of licensing bodies, register of the Federal Service on Customers' Rights Protection and Human Well-being Surveillance (Rospotrebnadzor) – information on availability of appropriate permitting documents.

  7. Website of the Supreme arbitration court of the Russian Federation – the commercial case file, this section will present information on legal disputes and their subject-matter.

  8. Mala fide suppliers register updated by the Federal antimonopoly service.

After obtaining the data it is necessary to analyze them. In addition, you should pay attention to checking executives for good faith, the input data for that will be given to you by request from the tax office (p. 5).

Working with official sources lets mitigate risks. However the result depends on information analysis to a large extent – it is necessary to take into account all peculiarities, not neglecting risks, but not overestimating them at the same time, otherwise it may lead to breakdown of a deal with a partner, that is able and intended to fulfill liabilities.

The main disadvantage of this method is duration of good faith checking, dependence on working schedule of government officials. Individual requests are processed manually, on weekdays and by turn. The answer from the tax or state statistics service (Rosstat) may come during several weeks.

Checking for good business practice through Birank.com service

Birank.com is effective and convenient checking a business partner for good faith online. The service gets data from official sources on an automatic basis. Data communication delay does not exceed 1.5 seconds. It means that by information updating in, for example, EGRUL/EGRIP the urgent data will come to Birank.com no later than 1.5 seconds after they appeared on the state website.

An important advantage of Birank.com is that our clients are always armed with urgent and comprehensive information. It accepts the data directly from the Federal tax service, Federal bailiff service, Federal state statistics service (Rosstat), Supreme arbitration court, Unified federal register and other state services. All information that is collected several weeks manually is presented by single click for 2 seconds.

Besides, the service has an analytical module that operates on an “artificial brain” principle – automatizes routine by data analysis. As a result a client gets information from official sources and preliminary conclusions on its basis.

Advantages of business partner checking on Birank.com website:

  • Accurate information – the service accepts data directly from the bases of state services on an automatic basis.

  • Urgent and comprehensive information on a legal entity or individual entrepreneur – the data are updated online.

  • Ease of use – all data are in one card, you do not need to wait for query answers from the Federal tax service and Rosstat, it is enough to enter the name of a legal entity or full name of an individual entrepreneur.

The initial access is available for everyone – for free and without registration the service makes it possible to check information upon basic criteria of business partners’ good practice. Besides, there is a trial access – a full-function free trial, open for using at a certain period of time. In order to get a trial access – to get all options of the system to yourselves for free – it is enough to press the button “Get a trial access” on the website.

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