Buying a Business or Corporation in Costa Rica
BUYING AN EXISTING BUSINESS OR CORPORATION
Many people get into real estate in Costa Rica to purchase or start a business. This page offers you some tips and suggestions on buying a business in Costa Rica. If you’re interested in starting a new business, this checklist gives you an idea of the permits and licenses you may need to run the business. There are many advantages to starting or purchasing a business here in Costa Rica. Often a product or service that is commonplace in other countries is not available here, so you can be successful here with a product that has a proven market elsewhere. Maybe you have experience that will allow you to provide a higher level of service or a better quality than products currently sold here. Maybe you would like to be your own boss, often buying or starting a business in Costa Rica is less costly.
Tips for Buying an Existing Company in Costa Rica
Buying an existing business in Costa Rica has many advantages, particularly in terms of getting permits and licenses. This bypasses all the bureaucratic hassles and allows you to jump into your new lifestyle right away. Also, you know that the business is functioning at a certain level, with many policies and procedures are already in place. This allows you to concentrate on improving the business and avoids many common start-up problems. If you decide to purchase an existing business in Costa Rica, there are some precautions you should take and common pitfalls you can avoid. Following is a business purchase checklist:
New or Existing Corporation?
Most businesses are run through a legally registered corporation. Often the first decision is whether to buy the corporation’s stock or to just purchase its assets and bring them into a new corporation. If you buy the stock and take over the corporation and place of business, you may be taking over a corporation that has hidden liabilities not on the corporate books. Although you would not be personally responsible, your investment could be at risk. You may protect yourself by buying only the assets of the corporation and not the corporation. In Costa Rica’s commercial code there is a clearly specified procedure for purchasing all the essential assets of a business, including trademarks and clients. Unfortunately, it is a lengthy process and all permits must be reapplied for in the name of the new corporation with no guarantee of success. Therefore as a practical matter, most people tend to purchase the corporation’s stock.
Checklist for Evaluating an Existing Corporation
This is more practical, but carries some risks. You purchase the company’s stock, so the business continues as usual. But you must evaluate many factors. How honest does the seller seem and how clear are the books? Are they realistic in terms of business in Costa Rica? You should carefully review the following records:
- Public legal corporate records – Including the recorded articles of incorporation, bylaws, type and amount of capital stock, and powers of attorney. You should have a knowledgeable, local, corporate law attorney check these.
- Private legal corporate records – Including current stock ownership, possible pledges of same, and stockholder and board resolutions not on public record. The same attorney can check these items.
- Corporate accounting – These records should clearly show the true income and expense situation, fixed and liquid assets, intangibles such as a business name, and short-and long-term liabilities. This accounting should also include the mandatory tax accounting books with updated information. A certified public accountant licensed in Costa Rica should check these items.
- Tax Situation – Including yearly income, sales, corporate stamp, property taxes, monthly sales taxes, and hotel lodging taxes. Also the municipal road taxes and commercial license fees. Local municipal charges for services such as waste removal, street lighting, and street cleaning. A certified public accountant licensed in Costa Rica should check these items.
- Permits and Licenses – All businesses need the health department permit and a municipal business license. These should be valid for the current business name and activity. Also be aware of special licenses according to the kind of business, including but not limited to the sale of domestic or foreign beers, wines, and liquors; permit for late hours functioning; registration with the Tourism Board for lodging tax; and recognition of a tourism quality restaurant. An attorney should checks these permits.
- Employee records – Including written contracts specifying employee particulars with responsibilities and salaries, along with up-to-date social security and worker’s compensation insurance payments. Here, it is best to insist on payment of benefits (mandatory vacation, Christmas bonus, and severance pay) accrued by the employees to the date of closing. A certified public accountant licensed in Costa Rica should check these.
- Property title and plot map studies – Ascertain that the property is recorded in the name of the corporation, as well as checking for the presence of liens, encumbrances, mortgages, and judicial claims. The recorded measurements on the property title should agree with the actual measurements on site. A real estate attorney in conjunction with a topographer can verify these items.
- Lease contract – Check whether the lessor is the current owner, the conditions for use of the property, and the rental payments and possible increases. The buyer should take into account that tenancy law excludes the possibility of conveying the lease without the written consent of the owner, which probably implies renegotiations of the contract terms. In the case of a business located within a government-owned shoreline area, it is necessary to review the government lease contract and what constitutes compliance with its terms. A real estate attorney can verify these items.
- Inventory – It must be clear that all furniture, equipment, and so on belong to the Business Corporation, free of pledges and other encumbrances.
- Utilities (Water, electricity, and telephone) – Check to ensure that billing is up to date and is in the name of the corporation, or at least of the current property owner (in the case of a lease). Special attention must be paid to the telephone line(s), which in Costa Rica constitute a separate right subject to formal conveyance recording at the state Telephone Company.
**Article from the archives of the American-European Real Estate Group**