Business partner checking

Nowadays business partner checking at the stage of a deal closing is a very important step of business relationships. In order to make certain of the fact that a company, legal entity, individual entrepreneur, being a party to the deal, are operating business partners and run their business with good faith, they are required the supporting documents before signing a contract or agreement with them.

Such documents most often include:

  1. Report from the USRLE certified by the tax authority;

  2. Corporate charter;

  3. Director’s passport copy;

  4. Founder’s decision on director appointment;

  5. Accounting report copy (balance sheet form №1 or form №2) or tax department tax paid certificate;

  6. Tax Authority Registration Certificate (INN);

  7. Legal Entity State Registration Certificate (OGRN, OGRNIP);

  8. Certificate of Entry in the Unified State Register of Legal Entities.

Each of the documents conveys its meaning. INN and OGRN (Primary State Registration Number) are supporting documents for proper business running confirmation. Accounting report or tax department certificate is necessary for confirming the absence of tax dues and taxes payment. It is very important to demand for such a certificate from your business partner, if it pays Value Added Tax.

However both tax authorities and auditors and court officials recommend to check business partners, whom you have business relationships with, by agreements or contracts supplementation, but the legislation does not regulate this moment. That is why it is sometimes impossible to demand, for example, for certified copy of director’s passport from your business partner.

Business partners make concessions providing with the full set of documents, if importance of making a deal comes first. However it happens that provided documents are not copies of original ones or may be counterfeited. There is an opportunity to make oneself safe checking business partner online.

Why to check a business partner?/h2>

What to check business partners for, whom you have business relationships with? Primarily, for your own and your business security.

Let us consider the cases when without due diligence you can face unpleasant and disputable situations.

Situation №1

When making a deal with a buyer, a business partner provided with all the documents certified by seal and director’s signature. According to the contract, the goods were dispatched. The business partner did not pay in its turn. Eventually, it turns out that the buyer provided certified copies of already invalid documents. For some period of time the company had been existing, but for the moment of contract signing it was already officially liquidated.

The company filed a lawsuit in court for payment for dispatched goods. The tried case was not in seller’s favor. All liabilities taken by the buyer do not have full force and effect, because the seal and signature in the contract are not considered to be in effect after company liquidation or entrepreneurship closing. First of all, the court asked the seller for the entitling documents demanded from the buyer when closing a deal. The documents were provided, but they did not have any full force an effect.

Such a situation may be unpleasant inasmuch as the tax official will estimate VAT refund as unjustified benefit. The tax authority will undervalue the amount refunded and may charge penalties for late payment. And the penalty for unjustified benefit is enormously high.

How to secure yourself against such partners in that case? It is necessary to check all business partners you are making deals with through recommended websites which present information on business partners online. Business partner checking is performed by tax identification number.

Online checking of a business partner is obligatory, if it pays Value Added Tax.

Situation №2

A company concludes a contract of goods delivery with a supplier. The supplier pays VAT, for that reason, delivery notes, integrated delivery notes, tax invoices are issued with Value Added Tax. Obtaining the goods including VAT the buyer must recover VAT amount, according to law. Before recovering the paid VAT amount to the buyer, the tax authorities check legitimacy of recovering thoroughly.

The seller, according to the Tax Code of the Russian Federation, must pay Value Added Tax amount by goods realization to the buyer in that period when realization took place. And the buyer has a right to recover this amount during three years.

When recovering VAT the buyer faced such an unpleasant situation: the tax official withholds VAT refund owing to the fact that the selling company was not paying Value Added Tax. As time passes the selling company was liquidated, that is why it will be impossible to submit claims against it.

The buyer’s claim tried by court resulted in unfavorable judgement (VAT included in tax invoices issued by the supplier cannot be refunded). In a legal procedure the buyer will have to prove that all arrangements by business partner checking were performed properly. And, as the court practice shows, it is very difficult to prove that.

In that case a buyer faces a double problem: a selling company has turned out to be a short-lived company not paying VAT as well.

As for the court practice, according to resolutions of Arbitration Court of the West-Siberian region from 31.05.2016 №A75-10708/2015, the Ural region from 27.05.2016 №A07-9933/2015, the North-Caucasus region from 25.05.2016 №A53-15222/2015, when choosing a business partner for business relationships it is necessary to exercise due diligence, because it is the partner who chooses whom to have business with, consequently, it must make sure of a business partner and its activity itself.

Business partner checking by INN on the website of the Federal Tax Service provides with general information on a business partner. At the time of making a deal a company may be operating, the entitling documents may be all right. However, in order to escape the described situation №2, companies need some other information, not provided on the federal website. In order to detect a short-lived company, it is necessary to have information on founders: if they were founders of other companies, existed earlier, but liquidated after a lapse of time. An important aspect of checking will be data on arbitration cases where the business partner is featured anyway.

When choosing a business partner for business relationships and deal making it is necessary to evaluate its solvency, first of all, bankruptcy information.

Situation №3

The goal for doing business has been and still remains financial resources. Every company, legal entity, individual entrepreneur conducts its business for pecuniary profit. As mutual settlements according to the agreement, a seller renders services, realizes goods, and a buyer undertakes payment liabilities. It happens that the buyer is not able to pay for obtained goods due to bankruptcy. In that case it is impossible to do without legal proceedings. Even if it is established by the legal procedure that the buyer must pay off according to the supply contract, he will be able to do that after a lapse of time through bailiffs.

Business partner checking by INN

When a legal entity registers with the tax authority it is assigned a tax identification number. This number is the one and only, because it is assigned to a business partner just once, and even after legal entity’s closing or liquidation this number will not be assigned to anyone.

Company’s or individual entrepreneur’s name may coincide with names of other companies or business partners, but INN may not. That is why business partner checking is generally performed by a tax identification number.

One of the most popular databases for business partners checking is the website of the Federal Tax Service of the Russian Federation. But the federal website provides with limited information – report from the Unified State Register of Legal Entities. Contained information will not give a comprehensive picture on a business partner. Tax Identification Number, Primary State Registration Number, codes of Russian Classification of Economic Activities and business partner’s status (active or inactive as of the request date) is the only points it lets verify.

Other information is available on other websites: home authorities, Federal State Statistics, state procurements, mala fide supplier websites and so forth. In order to check a business partner, you will need a considerable amount of time.

Birank service for business partners checking

Nowadays there are quite a number of services for business partners checking. It is important to find that particular service, which will present full, accurate, time-sensitive information on business partners. One of such services for business partners checking is Birank. The advantages of using this service are completed and urgent data provided. Three units of information on a business partner reflect full information.

The first unit includes:

  • Company profile (entitling documents, tax identification number, primary state registration number, codes of Russian Classification of Economic Activities);

  • Information on business partner status;

  • Information on founders (including if they are founders of companies that were closed or stay active up to the present moment).

The second unit provides with the information concerning arbitration cases and government contracts, enforcement proceedings and amounts payable, company’s financial standing (balance, operating revenue, net profit) in real time.

The third unit informs on:

  • legal entity’s bankruptcy;

  • valid licenses possession;

  • data in mala fide suppliers register;

  • inspections of Prosecutor-General’s Office.

All three units present comprehensive information on business partners. Such volume of obtained information will create a full and clear picture on a business partner, its financial standing, activity, reliability for concluding contracts and conducting business relationships.

Business partner checking on Birank.com website is simple and easy to use. It lets search a business partner not only by INN, PSRN, but also by person’s full name (if a business partner is an individual entrepreneur) or legal entity’s registration address.

Business partner checking for the purpose of introduction into the service is provided for free. Information available in that case is as follows: director’s full name, registration address, codes of Russian Classification of Economic Activities, Primary State Registration Number, Tax Identification Number, status. For the sake of convenience there is a map with indication of business partner’s location below the data unit.

The service for business partners checking is available online and updates information every day. That is, collection of all necessary data on a business partner can be carried out without leaving office.

Information is provided on the basis of paragraph 1 to Article 6 of the Federal law from 08.08.2001 №129-ФЗ “Concerning the state registration of legal entities and individual entrepreneurs", paragraph 42 to the Accounting Regulations “Company’s accounting reporting" (ПБУ 4/99), approved by the Russian Finance Ministry’s Order from 06.07.1999 N 43н, Article 7 of the Federal law from 05.04.2013 №44-ФЗ “Concerning the contract system of the federal and municipal procurement of goods, works and services", Article 15 of the Federal law from 22.12.2008 №262-ФЗ “Concerning provision of access to information on courts operation in the Russian Federation", Article 6.1 of the Federal law from 02.10.2007 №229ФЗ “Concerning enforcement proceedings”, Article 9 of the Federal law from 26.12.2008 №294-ФЗ “Concerning legal entities’ and individual entrepreneurs’ rights defense by state and municipal supervision exercising", the Directive of the Central Bank of the Russian Federation from 03.12.2012 №2923-У “Concerning consolidated financial statements disclosure and presentation by head credit institutions of banking groups".

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