How can a business owner check a counterparty?

In the current realities of Ukrainian business counterparty verification - is not a formality, but a matter of survival. One unsuccessful contract can result in financial losses, litigation, tax problems, or even criminal cases for a company.

Therefore, every business owner should know before signing a contract: Who exactly they are dealing with, how reliable the partner is, and whether debts, fines or fictitiousness are hidden behind the big name.

This article provides step-by-step instructions on how to check a counterparty and avoid losing money, reputation, or business.

Why check the counterparty?

Even if a company looks "solid" and offers favorable terms, this is not a guarantee of its integrity. Here are just a few of the risks of working with an unreliable counterparty:

• non-payment under the contract or disappearance after prepayment;

• litigation, seizure of accounts or property;

• additional tax charges during the inspection of the State Tax Serviceif the transaction turns out to be fictitious;

• cooperation with a company associated with fraud or under sanctions;

• violation of anti-corruption or currency legislation.

What exactly do you need to check?

Due diligence should cover at least the following aspects:

1. Legal status and registration

2. Financial stability

3. Existence of court cases, enforcement proceedings, debts

4. Tax history and VAT payer status

5. Relationships with other persons or companies

6. Reputation and public information

Step-by-step instructions for checking

1. Checking the state registration

Start with the open USR on the website youcontrol.ua, opendatabot.ua or directly to the USR.

Take a close look:

• date of registration (suspicious if the company was registered recently);

• the main KVEDs;

• legal address;

• criminal record of the director or founder;

• number of companies in which the person has connections (may indicate fictitiousness or schemes).

2. Checking the taxpayer status

On the website State Tax Service of Ukraine services available for verification:

• VAT payer: cabinet.tax.gov.ua

• single tax payer;

• tax debt.

If the VAT is canceled, you should pay attention to the fact that the company may have problems with tax accounting.

3. Court cases

Check the counterparty in the register court decisions - reyestr.court.gov.ua:

• Is the company involved in any lawsuits?

• Who is the plaintiff - tax authorities, employees, creditors?

• What is the frequency and amount of claims?

Frequent lawsuits or enforcement of court decisions may indicate a poor financial position.

4. Inspection of enforcement proceedings

Use the Unified register of debtors (erb.minjust.gov.ua) or check through OpenDataBot. If the company is a debtor in enforcement proceedings, this is a significant risk.

5. Analysis of related parties

Links with other companies or individuals that already have a negative reputation are another red flag. Check:

• founders and directors;

• number of companies per beneficiary;

• common managers in different legal entities.

This will help avoid schemes with fictitious companies.

6. Financial position

The financial statements can be accessed via:

• YouControl, Liga360 or Opendatabot;

• analytics portals;

• by direct request to the counterparty.

Analyze: income availability, growth dynamics, tax burden, debt.

7. Public information and reputation

Google the company:

• or mentioned in the media;

• whether it appears on the lists of fraudulent organizations;

• whether there have been scandals or inspections by the SFS, the SBU, or the State Labor Service.

It is also useful to review feedback from customers or counterpartiesespecially in the construction, logistics, and procurement sectors.

Checking a foreign counterparty

There are also verification tools for non-residents:

• registers of companies in the EU or the USA (for example, Companies House - UK);

• AML / KYC monitoring systems;

• OFAC, EU, UN sanctions lists.

Pay attention to the country of registration: some jurisdictions may be offshore, which creates additional risks.

When is the inspection mandatory?

Legal verification of the counterparty is not always a requirementbut in some cases it is critically important:

• before concluding a large or long-term contract;

• at advance payment or prepayment;

• during public procurement;

• at export and import operations;

• in cases of financial monitoring and suspicious transactions.

Liability for cooperation with a fictitious counterparty

If your counterparty is a fictitious or "technical" company and the transaction has no economic substance, the tax authorities may:

• recognize the transaction worthless;

• do not take into account the costs for tax purposes;

• to charge additional VAT, income tax, fines and penalties;

• transfer the materials to the law enforcement agencies.

How to minimize risks?

• Lead archive of checks (screenshots, documents, statements);

• Use KYC verification standard (know your client);

• Include in the contract disclaimer of liability of the counterparty;

• Contact our lawyers to analyze new partners;

• Regularly Monitor counterpartieswith whom you are already working.

Conclusions.

Counterparty verification is not a formality, but an important part business security. It's better to spend 30 minutes on analysis than months in court, restoring your reputation, or fighting tax assessments.

This is especially important in times of martial law, active fraud and financial instability. Therefore, every contract is only signed after verification.

Advice from Axel Legal

Lawyers Axel Legal help businesses build secure contractual relations and conduct in-depth verification of counterparties - both Ukrainian and foreign. We analyze registers, risks, connections and prepare legal opinions on the feasibility of cooperation.

Contact us to work only with reliable partners.