How to safely invest in Ukrainian business?

In this article we will talk about the legal ways for an investor to make money by investing in Ukrainian companies. This is the second part, if you have not read the first part, be sure to check it out, it is about crowdinvesting and related legal issues.

Next, we will share with you our experience in what legal formats you can make money with Ukrainian businesses (in addition to the options described in the first part).

Investment agreement with the object of investment in Ukraine

Description: The legislation does not have a clear definition of the term “investment agreement”; it can be any document under which you invest money in something. It can contain attributes of purchase and sale, joint activity, franchising, loan, trust management; it can be notarial and simple written, with or without registration. It can refer to any sphere of business. However, this flexibility has its advantages and disadvantages.

Advantages: You develop an agreement to suit your individual needs and expectations, conclude it directly with the company in which you invest, you can agree on a convenient level of control. With the proper execution of the contractual relationship, the investor will have leverage and comfortable opportunities to exit the investment.

Features and risks: You need to be well versed in the field of investing in order to create a quality investment agreement.

What you should check before investing:

• the company you are investing in: corporate documents, permits, financial condition, litigation, beneficiaries, regulatory environment;
• the ability to control the company’s operations;
• the compliance of the investment agreement with the law;
• Whether the investor can repossess the company if it ceases to yield (exit options from the investment).

Assistance that we offer:

• Negotiation with the company in which you are investing;
• Development of a quality investment agreement;
• Review of the agreement proposed by the company;
• Inspection of all aspects of the business: from corporate documents to when the next time the supervisory authority may come and the quality of the company’s contracts with counterparties;
• Legal support of the conclusion of the transaction.

Please read about investing in construction here and here.

Loan agreement (repayable financial assistance) for a company in Ukraine

Description: You transfer funds to a company (an individual) with an obligation to return them to you after a certain period of time. We already wrote about the peculiarities of financial assistance here.

Advantages: The company has a clear obligation to you – to return the funds, so you risk only in case of complete default of your partner; you are not involved in the operating activities of the company.

Features and risks: Loan agreements (repayable financial assistance) can be different: notarized and simple written, with or without collateral; each option has its own level of investor safety.

The main thing is to understand how realistic the prospects are for repayment if the company turns out to be unscrupulous. It is common practice for companies to offer to enter into a loan agreement on behalf of an “empty” legal entity, while all assets remain with the “clean” company with no way to recover them if something goes wrong.

What you should check before investing:

• the terms of the loan agreement, whether it will be notarized;
• if the agreement is notarized, make sure that it provides for the possibility of collecting the debt out of court;
• whether the borrowing company has sufficient assets to run its business and repay the debt;
• the legal regulation of the agreement: can you transfer funds at interest, what are the tax consequences;
• the debt load of the business – what is the ratio of funds raised to the business’s own assets;
• the history of attraction and return of investments by this company.

Assistance that we offer:

• Inspection of the company, analysis of the history of its business activities;
• Study of the legal aspect that may raise risks for the company (for example, if it does not have the necessary authorization and the regulatory authorities will forbid it to operate after the first inspection);
• Review of the company’s financial documents;
• Development of the agreement;
• Signing of the agreement with a reliable notary.

Acquisition of an object for transfer of management in Ukraine

Description: You buy real estate, cars, equipment, and other noncurrent assets and transfer them to a management company to run your business. So you can jointly or solely invest in opening a store/hotel/gym/retail outlet, operating a carrier, expanding the production capacity of an enterprise. Or, for example, you buy an apartment, and the management company divides it into smart apartments and rents them out.

The profit is divided according to the agreements between the investor and the management company. The agreement can have different legal forms, containing elements of contracts of sale, lease, leasing, trust.

Advantages: You own the asset, you can take it away if the business does not “take off” (according to agreements with partners, of course); you can directly control the use of the property.

Features and risks: The investor’s income depends on the efficiency of property management, and your partner influences the formation of profits (for example, through payments to related persons). As the owner of the property you will bear certain risks associated with its activities (e.g., an accident while working on your equipment, an accident with the driver on your car, complaints from neighbors about repairs in your premises).

What you should check before investing:

• The main thing to check is your contractual rights in relation to the property you have placed under management;
• The procedure for forming profits, whether the investor has leverage;
• The partner’s business history, whether it has all the necessary permits for the intended activities;
• Depreciation of the property should not outstrip the return to the investor of the body of investment and the return on investment;
• Whether the investor will not bear the legal risks of using its property;
• If buying the property with other investors, how your roles and rights are divided.

Assistance that we offer:

• Development of the agreement, adding the necessary safeguards to protect the investor;
• Legal support of the purchase of the object of investment, the correct execution of it for the investor;
• Obtaining the necessary permits, if your partner does not have them;
• Control over the project on your behalf;
• Tax optimization of the deal.

Related articles:

Import of equipment into Ukraine

Acquisition of land in Ukraine by a foreign entity

Acquisition of industrial complex in Ukraine

As we can see, investing hides many legal nuances that can distract from an investor’s main objective – building a stable and profitable investment portfolio.

We understand this and create for our Clients an environment where everyone focuses on their goal. Our goal is to make investing simple and legally safe for you.

You can find out the cost of safe investment support services from our specialists.

Cost and terms of consultation here.