Do I keep the existing corporation or set up a new one?

Most businesses in Costa Rica are run through a legally registered corporation. One of the first decisions to make when acquiring an existing business is whether to purchase and keep the existing corporation’s stock or to just purchase its assets and transfer them into a new corporation. By taking over the existing corporation, a purchaser risks acquiring liabilities or contingencies not shown in the corporate books, and possibly not discovered during due diligence.

Although you may not be personally responsible, your investment could be at risk.

Legally, if you opt to acquire the existing corporation, some protection can be provided by including certain clauses in the offer to purchase agreement, and subsequently in the closing documents.* The seller can also be required to execute an affidavit to guarantee full disclosure of any and all corporate liabilities, and also to provide guarantees and statements regarding the good standing of the corporation and its assets.

If you opt to acquire only the assets of the corporation — and not the corporation itself — when setting up a new corporation, all permits, licenses, bank accounts and lease agreements relating to the existing business must be reapplied for in the name of the new corporation. This process can take four to six weeks. To avoid this delay, most people purchase the corporation’s stock and its assets, understanding the associated risks and/or potential liabilities. They can expedite the purchase of the “commercial establishment” based on the process established in sections 478, 479, 480, 481, 482, 483, 484, 485, 486, 487, 488, 499 of the Commerce Code.

In this case, the purchaser could pursue legal action if it were proven that the seller was hiding relevant or vital information and/or acted in bad faith.