Business due diligence before a purchase: what to know before signing

Buying an existing business can look simpler than starting a company from scratch. Yet along with assets, clients and profit, the buyer may also acquire debts, court disputes, problematic contracts, tax exposure or hidden liabilities.

This is why a comprehensive review before the purchase matters.

The starting point is not a document checklist but a single question that determines everything else: what exactly are you buying — the company, or its property? The answer determines which risks transfer to you with the deal.

Two different deals: shares and assets

Buying corporate rights means acquiring a share in the charter capital of a limited liability company, or shares in a joint-stock company. The legal entity itself does not change: the same registration code, the same contracts, licences and bank accounts — and the same liabilities. All debts, tax assessments, court disputes and warranty obligations remain inside the company. Only its owner changes.

Buying assets means acquiring specific property: equipment, real estate, inventory, trademark rights. As a general rule the seller’s liabilities do not pass to the buyer unless the law or the contract provides otherwise.

The practical conclusion follows: in a share deal the review must go deeper, because the buyer takes on the company’s entire history, including the part that appears in no register. In an asset deal the focus shifts to title over each object and to encumbrances.

One important exception concerns employees — see below.

What needs to be checked

Due diligence before buying a business may cover:

• the corporate structure and the company’s owners;
• the director’s authority and the grounds for entering into the transaction;
• financial and tax liabilities;
• debts, enforcement proceedings and court disputes;
• key contracts with clients, suppliers and partners;
• title to real estate, equipment and other assets;
• licences, permits and other documents required to operate;
• employment relations and potential personnel risks;
• rights to trademarks, domains, software and other intellectual property;
• the reputation of the company and its key counterparties.

A significant part of this can be gathered from open sources: the Unified State Register of Legal Entities and Sole Proprietors (ownership structure, ultimate beneficial owners, the director and any limits on their authority), the Unified State Register of Court Decisions (disputes, including pending ones), the Unified Register of Debtors (enforcement proceedings), the registers of the State Tax Service e-cabinet (tax status, VAT registration) and the State Register of Sanctions. Title to real estate and encumbrances are checked against the State Register of Real Property Rights, and movable property against the State Register of Encumbrances over Movable Property.

Everything else — contracts, HR files, primary accounting documents, settlement history — can only come from the seller. Willingness or reluctance to provide them is itself diagnostic.

The scope of the review depends on the industry, the deal structure and the value of the business.

Why financial indicators are not enough

Strong revenue or profit does not by itself mean a business is safe to buy.

A large part of the revenue may depend on a single client; property may be pledged; key contracts may give the counterparty a right to terminate upon a change of owner; and some operations may create tax exposure.

The last example deserves particular attention. A change-of-control clause is a standard term in significant lease, distribution, licence and credit agreements. It entitles the counterparty to exit precisely when the company changes hands. If such a contract generates a large share of revenue, the buyer may acquire the business and lose its main source of income two weeks later — entirely lawfully.

It is therefore essential to assess not only the figures but the legal foundation on which the business operates.

What the review can uncover

A proper review makes it possible to identify, before the deal, factors that may affect its terms. For example:

• hidden debts or liabilities;
• corporate conflicts;
• problems with title to assets;
• pending court proceedings;
• risky counterparties;
• dependence on particular employees or partners;
• missing permits;
• unsettled rights to the brand or other assets.

A separate check covers whether the pre-emptive right of the other participants to acquire the share has been observed, and whether the charter requires the consent of other participants to a disposal. Article 21 of the Law “On Limited and Additional Liability Companies” allows such a restriction to be set out in the charter — and a transaction concluded without following that procedure may be challenged.

This information may justify changing the deal structure, revisiting the price, or adding further protections for the buyer.

Employees transfer with the business

This is the point most often overlooked in asset deals.

Since 15 May 2024, Article 36-1 of the Labour Code of Ukraine, introduced by Law No. 3677-IX, has been in force. It provides that upon the transfer of a business entity, employment relations continue with the acquirer. A transfer includes, in particular, a change of the owner of an enterprise where the same type of economic activity is retained.

In practice this means that acquiring assets and staff “free of obligations” is not possible: the employer’s rights and obligations pass to the buyer along with the business. The article also obliges both the former and the new owner to inform employee representatives in writing no later than 10 working days before the transfer — of its date, reasons, and legal, economic and social consequences.

The HR part of due diligence is therefore not a formality: wage arrears, unused leave, incorrectly documented contracts and unpaid compensation become the buyer’s problem after closing.

When AMCU clearance is required

Medium and large transactions are subject to a separate procedure — merger control.

Article 24 of the Law of Ukraine “On Protection of Economic Competition” requires clearance from the Antimonopoly Committee where the combined value indicators of the participants in the concentration exceed the equivalent of EUR 30 million and the indicators of at least two participants each exceed EUR 4 million in Ukraine. Clearance is also required under an alternative test: where the value of assets or turnover in Ukraine of one participant exceeds EUR 8 million and the worldwide turnover of another exceeds EUR 150 million.

This should be established at the start of negotiations rather than shortly before signing: obtaining clearance takes time, and its absence is a standalone risk to the transaction.

How a share transfer is formalised

The legal mechanics matter here no less than the review itself.

Transfer of a share in the charter capital of an LLC is registered on the basis of an act of acceptance and transfer of the share. Under Article 17 of the Law of Ukraine “On State Registration of Legal Entities, Sole Proprietors and Public Formations”, the authenticity of signatures on that act must be certified by a notary.

Until the changes in the composition of participants are registered with the state, the buyer is not formally the owner of the share, however much has already been paid. Payment arrangements should therefore be tied to the moment of registration rather than to the date of signing.

The review should be comprehensive

Before buying a business it is advisable to carry out not only legal but also financial and tax analysis. It is the combination of these strands that gives the fullest picture of the company’s real condition.

The larger the transaction and the more complex the business, the more important it is to complete the review before documents are signed and funds are transferred.

How the findings shape the deal

An identified risk does not always mean walking away. More often it means different terms. Depending on the nature of the finding, the parties use:

• a price reduction reflecting the assessed risk;
• conditions precedent: the deal closes only once a specific problem has been resolved;
• seller representations and warranties as to the absence of hidden liabilities, with liability for their inaccuracy;
• retention of part of the price for a defined period to cover possible assessments and claims;
• staged settlements tied to state registration of the changes;
• a change of structure: an asset deal instead of a share deal where the company’s history raises doubts.

This is why due diligence should be completed before the final wording of the contract is agreed — its findings are the material for the negotiation.

How ARGUS can help

ARGUS Consulting group carries out comprehensive due diligence before a business purchase and helps assess the legal, corporate and security risks of the intended transaction. Where needed, the review is supplemented by a security audit — including checks on the owners, management and key counterparties.

The client receives structured information on the risks identified, their potential consequences and recommendations on the next steps.

Planning to acquire an existing business or a share in a company? Contact ARGUS Consulting group — we will review the business before you make the final decision.

Legal basis and registers

• Law of Ukraine “On Limited and Additional Liability Companies” No. 2275-VIII — Art. 20 (pre-emptive right of a participant), Art. 21 (disposal of a share, restriction possible under the charter), Art. 44 (significant transactions)
• Law of Ukraine “On State Registration of Legal Entities, Sole Proprietors and Public Formations” No. 755-IV — Art. 17 (act of acceptance and transfer of a share, notarisation of signatures)
• Labour Code of Ukraine — Art. 36-1 (employment relations upon transfer of a business entity; introduced by Law No. 3677-IX, in force from 15.05.2024)
• Law of Ukraine “On Protection of Economic Competition” No. 2210-III — Art. 22, 24 (merger control, cases requiring AMCU clearance)
• Code of Ukraine on Bankruptcy Procedures No. 2597-VIII
• Unified State Register of Legal Entities and Sole Proprietors · Unified State Register of Court Decisions · Unified Register of Debtors · State Tax Service e-cabinet registers · State Register of Sanctions

Legal position stated as of 8 September 2026.