False Entrepreneurship Issues

Hereby we would like to draw your attention to risks caused by relations with false entrepreneurs.

False entrepreneurship can put a heavy damage to business of fair companies (counteragents of false enterprise). Thus, we express our concern and we would like to disclose some features of false entrepreneurship.

An enterprise is regarded as false enterprise only on basis of court decision.

Negative consequences arise out not only for the false enterprise, but for its counterparts as well. Thus, a deal concluded between a false enterprise and its counterpart is considered to be doubtful and fictitious, and signed with the purpose of tax evasions. In case of recognition of an enterprise as false enterprise, its counterparts are likely to be imposed responsibility by tax authorities in connection with expenses and turnover under deals with a false enterprise.

According to civil procedural legislation of the RÊ, a court sentence on criminal case is obligatory for a court which considers civil cases under civil consequences of actions of the sentenced person. Thus, due to a legal precedent a counterpart largely loses opportunity to prove in judicial order legitimacy of concluded deal with the false enterprise.

In this regard, we would like to point out certain features of a false enterprise:

•\tFalse enterprise does not have intention to run actual business;

•\tFictitious activity. Absence of tax deductions;

•\tAbsence of staff;

•\tAbsence of material and technical base;

•\tNot opening of bank accounts;

•\tConcealing information on shareholders;

•\tPreliminary search in public sources for the information on whether activity of potential supplier/contractor has been considered as false entrepreneurship;

•\tUndertaking activity which is not provided by foundation documents etc.

With the purposes of minimization of risks we would like to recommend the following:

1) During procurement of goods, works and services to request from potential contractors the following:

•\tFoundation documents;

•\tLegal and postal address as well as other contact details;

•\tBank details;

•\tRecommendation letters (in exceptional cases);

2) Introducing internal rules on procurement or making changes to such internal rules with the purposes of determining reliability of potential contractor (professional experience, and solvency).

We hope that information above will be useful for you. Should you have any further questions or any information please feel free to contact Talgat Sariev (Tbs@signum.kz) and Rakhat Baisuanov (Rdb@signum.kz).

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please seek for a specific advice in relation to any questions. Please note that Kazakhstan and Turkmenistan are emerging economies and their legislation and legal systems are in constant development. Should you have any questions or would like to discuss subjects addressed in this Client Update please contact us.