Alexander BONDAR

A dozen cases on the protection of the owners’ rights when attracting investments


In the life cycle of any business, comes the moment when it (business) requires external investments for further development. The process of theirs attracting may go along with problematic issues. Experts point out that for qualitative accompaniment of transaction with an investor, good lawyer is needed; the one who, thanks to his knowledge and experience, will help to sort it out.

Our experience shows that the majority of transactions fails not then and not because of the fact, that large investor comes to the company and starts making demands. On the contrary, the entire investment structure, as such, is quite settled and has a certain set of basic documents that has been worked out for years: from business-angels, venture investment, through Private Equity Funds, international funds and financial organizations, and IPO conducting. All these procedures are structured and the transactions are not broken there. Very often, cancellation of the transaction is laid at the stage when businessmen do not even think about the future investment transactions. In our experience, the only factor in the failure of the investment transaction is the entrepreneur himself. His main task is to structure the deal long before such an idea can come to his mind” – says Alexander Bondar, partner at SBH Law Offices.

The expert acquainted with the cases of the law office, where the actions of the owner led or could potentially lead to the disruption of transactions. 


Example №1

Absence of single structure

We were approached by the client with a retail business who would like to attract foreign investments from a foreign investor. However, it turned out that there are 17 legal entities in his structure that were created in different ways; the property is distributed in such a way that there is no single center to invest in. In order to complete this transaction, it took more than a year to structure the assets for future business. The investor demanded a single company, moreover, registered outside the Republic of Belarus, as he wanted to structure the transaction under the foreign law.


Example №2

Tax optimization of the owner

Businessman for tax optimization conducting has opened a lot of companies involved in the rental of real estate using the simplified taxation system (STS). The peculiarity of such companies is that their founders cannot be legal entities with share exceeding 25%, respectively, individuals acted as founders. An investor who wanted to buy a stake in this business said that he needed one company. But as soon as appears consolidation into one company, the preconditions of the company’s application of the STS disappears. After the owner considered how much this consolidation would cost him, it turned out that his financial model was fundamentally changing: he had additional expenses with the general tax system. As a result, it turned out that business that was of interest to an investor stopped to be such after different consolidation options were calculated.


Example 3

Incorrect formation of corporate structure

The owner had a pharmaceutical business in Belarus and Russia and his relative was appointed as a director of the company. The investor was interested in entering this mini-holding, which included Russian and Belarusian assets. When the question about consolidation was raised, the Russian owner announced his desire to leave the common business. The fact that assets are registered on the relative seems nonsense today, but it happens in real life. Such relatives cannot be controlled when conflict appears. They begin to abuse their position, blackmail, disrupt the deal, agreement.


Example №4

Open questions with minority shareholders

An investor intended to enter the Belarusian retail business. The transaction took place in fact, but later than it was planned. At some time, part of the company's assets was acquired from CJSC, where not all shares were bought out and minority shareholders remained. This led to resolving issues with minority shareholders.


Example №5

Corporate structure without a clear cost evaluation

An investor comes to a company with retail and real estate businesses, who is interested only in retail. The owner has structured the company in such way, so that it represents both directions. In this case, it is necessary to sivide forcibly the business before attracting an investor to the project. Such situation is seen quite often in the IT business, when company develops several projects simultaneously. It happens that the investor is interested in some particular project. In reality, the situation is that the development team, office are common, it is impossible to single out one product: it takes time for structuring, allocation. On the other side, the investor who is ready to enter is not willing to wait.


Example №6

Unselected management structure

The holding company, located in Cyprus, has two co-shareholders. In order to make a decision within the company, it is necessary for them both to give the instructions to the director. There is deal in the process that includes investments in one of the businesses and sell of second business. During the execution of the transaction, one of the co-shareholders was detained by the police and he cannot give the instructions necessary for the transaction. The director of the company took a formal position: until he receives written instructions from both shareholders, he will not do anything. Both deals were disrupted. After a while, the shareholder was released from detention, but both deals are disrupted. This is an example when the corporate governance structure is not built, in emergency situations nothing can be done, a stalemate situation takes place.


Example №7

Unsolved Guarantee Issues

This example in practice is quite common. In our case, it was a group of companies comprising more than 50 legal entities working in different directions. It was necessary to attract investment in one of the businesses, an investor was found. When they started examining the structure of the company, it turned out that this fairly successful business is a guarantor for the obligations of unsuccessful businesses and for the last 3 years has been financing other areas of the developing business. In addition, he is a pledger of his property for another business. The investor does not need obligations to other businesses: it is necessary to “clear” obligations, what means agree, refinance, and resolve issues of guarantee. All this issues are almost impossible to do simultaneously.


Example №8

Obligations to foreign companies

There are issues when company is not ready to attract foreign investments, since it has obligations to foreign banks or other companies structured under foreign law. For example, there is a co-financing agreement under English law. There is an investor who gives the capital, but with the condition of repayment of all current liabilities. A foreign bank, in turn, refuses in debt repayment ahead of schedule, because finds the company as bona fide borrower and is not interested in losing him. Such situation becomes a problem, and it shall be initially foreseen in the case when there are plans to attract an external investor.



Example №9

Formalization of intellectual property rights

Such examples are common in the IT-field. There was a case in the practice of SBH Law Offices when the IT-business was attracting investment by developing a single product. Previously, two programmers worked on the product, with whom the owner had quarreled. The developers demanded compensation for the dismissal and for the transfer of all rights to the product. The owner treated superficially this question; he did not act well with the developers, and did not sign any documents. As part of the deal, the dismissed programmers filed two copyright claims on the product, part of which was made by them. As confirmation, they had a disc with the source codes of the program. As a result, the owner of the business paid them 100 thousand US dollars each so that this transaction would not be disrupted. In this case, it was the cost of an error based on questions of intellectual property rights and the short-sightedness of the owner.


Example №10

Guarantee of business owner

The personal guarantee of the owner is very big asset. Often, owners toss around personal guarantee, which leads to the loss of everything earned over the entire existence of the business. Personal guarantee is the very last bargaining chip that is “presented” in the case of attracting financing in large volumes and it is impossible to present anything else as a guarantee.


Example №11

"Spouse factor"

There are often such cases where spouses affect the disruption of transactions. By the time a transaction or investment is made, the relationship is broken, and the spouse begins to claim half of the property, including stocks, part which can be sold. Therefore, marriage contract for a businessman is a document necessary for the sustainable functioning of the business as such.


Example №12, perhaps the most important

The interests of the owner will be protected by their own lawyer

When making investment transactions in which an international bank provides financing or is being part of capital, Belarusian companies often think that it undertakes to finance all consultants, auditors, and lawyers. But lawyers work for their customer and in the interests of this customer. Often, entrepreneurs believe that one law firm can accompany a transaction from two sides. Unfortunately, no: lawyers will work on the side with which they have an agreement. Therefore, the owner needs his own lawyer to support the transaction in his interests.


- What should be done to ensure such examples are not repeated in practice?

- Carry out VDD (Vendor Due Diligence). This is actually Due Diligence or the procedure of forming the view about the object of investment, which the owner does by himself, in order to understand that he is doing well with corporate rights, property, finances. And when this procedure is done periodically, only then the owner can confidently look into the eyes of the investor and hope for a positive development of the events during the transaction.

In addition, you need to involve experienced law firms in your work and listen to their recommendations.





A dozen cases on the protection of the owners’ rights when attracting investments
A dozen cases on the protection of the owners’ rights when attracting investments


Corporate law, M&A

Banking and finance

FinTech, IT

Antitrust regulation

Belarusian, Russian, English, Latvian
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