Investments in IT and TMT-assets as the basis for business development
Business transactions for the purchase and sale of assets account for the lion's share of business activity, including telecommunications and IT assets.
But there is still no single regulatory act that would independently regulate business transactions with TMT (technology, media, communications) and IT assets.
Therefore, to successfully solve business problems, it is necessary to focus on different areas of legislation and understand the specifics of these areas.
In this article, we offer the analysis and recommendations of Maksym Kurochko, managing partner of MK Legal Service, and Oleksiy Ilyuschenkov, senior associate, head of the IT and TMT practice of MK Legal Service, on what you should pay attention to before buying these specific assets.
Conventionally, the legal part of the purchase and sale of TMT and IT assets can be divided into the following stages:
— Due diligence of the target asset;
— direct execution of contracts or transfer of the asset in another way that does not contradict the law;
— obtaining necessary permits or licenses for the full use of the acquired asset.
We propose to dwell on each of these stages separately.
Due diligence of TMT and IT assets
This process does not differ from the audit of any other assets, but it has its own specifics and implies:
— verification of the legal status of a legal entity by studying corporate documentation, the powers of its officials, corporate governance structure;
— analysis of permit and licenses documents, certificates;
— verification of ownership and lease of tangible assets, in particular real estate;
— verification of property rights to intellectual property: registration certificates, license agreements;
— verification of legal risks affecting the asset: litigation, tax audits, enforcement proceedings, arrests, criminal cases, other claims or restrictions on the use of the asset;
— inspection of labor relations for the presence or absence of employment contracts and the involvement of individual entrepreneurs.
If the asset is purchased by a telecommunications company, it is worth checking:
— whether it is included in the Register of operators, telecommunications and providers, as required by the provisions of the Law of Ukraine "On Telecommunications";
— whether such company has properly executed contracts with subscribers (in accordance with the decision of the National Commission for State Regulation of Communications and Informatization (NCCIR) "On approval of the Basic requirements for the agreement on the provision of telecommunication services and the Invalidation of the NCCIR decision of 26.03.2009 № 1420" of November 29, 2012 № 624).
If you decide to buy an IT company, pay attention to the legal status of IP objects and the availability of employees with appropriate qualifications: these assets increase its value and reduce the risks of violating your rights as a buyer.
Agreements in the field of TMT and IT asset management
The purchase of TMT or an IT asset or the right to use the asset can be carried out in different ways. Among the most common are the conclusion of contracts:
— purchase and sale;
— long-term lease;
— on creation by order and use of the object of intellectual property rights;
— on the transfer of exclusive intellectual property rights;
— license agreement or license for the use of an object of intellectual property rights.
Sometimes an agency scheme of asset acquisition is used. For example, in order to transfer the subscriber base from the seller to the buyer without acquiring the legal entity of the seller with which the subscription agreement is concluded, the parties enter into an agency agreement on attracting customers. According to it, the buyer pays only for those subscribers of the seller who agreed to renew the contract in favor of the buyer's services.
The form and content of the agreement will depend on the type of asset. Thus, real estate, state registration of real rights will be required (in accordance with the Law of Ukraine "On State Registration of Real Rights to Real Estate and Their Encumbrances") and notarization.. For other assets, for which there are no other separate requirements a simple written form will be sufficient.
Other ways of investing in IT and TMT assets
If you are interested not only in the asset itself, but also in the business to which it belongs, you should consider the most common options for investing in IT business.
The first option is the purchase and sale of a share in the authorized capital of a legal entity, after which you automatically acquire the rights to all assets registered in such a company.
This is a reliable way to buy assets if you conduct a thorough check of the company at the preliminary stage of due diligence. Pay attention not only to target assets, but also to other parts of the business, including liabilities and encumbrances.
The process of acquisition or merger of legal entities will become more complicated and costly for you, as it will require the development of double the amount of documentation and longer due diligence of the M&A participants.
The problem may be the purchase of a TMT or an IT asset registered on several individual entrepreneurs. Of course, at the initial stage, this allows you to pay less taxes and simplify working conditions.
But with the growth of business and the value of assets, this model loses "transparency" for the investor and requires the execution of additional agreements for the transfer of such assets. To solve this problem, the state introduced the legal regime "Diya City", which was introduced by the Law of Ukraine "On stimulating the development of the digital economy in Ukraine".
Thus, the best way to formalize the transfer of rights to an asset should be determined based on the conditions of its previous legal status and the direct intentions of the parties to the agreement.
Obtaining the necessary permits and licenses
The condition for the subsequent full use of the asset may be the availability of licenses, permits or certificates. For legal work, an operator, telecommunications provider must be included in the Register of operators, telecommunications and providers maintained by the NCCIR. When using the radio frequency resource of Ukraine, it is necessary to obtain an appropriate license and permit for the operation of radio electronic means.
In order to provide TMT services, state authorities often require the creation of a comprehensive system for the protection of state information resources or confirmation of the compliance with the information security management system: this will require obtaining a certificate of conformity or certification.
If the telecommunications operator is going to independently lay communication lines, a specialist with a design engineer's certificate will be required, and in some cases - a permit to perform high-risk works.
In the activities of an IT company, it is appropriate:
— registration of certificates and patents to obtain state recognition and protection of intellectual property rights created in its activities;
— obtaining permits for the use of intellectual property rights.
In general, there is no clear list of necessary licenses and permits, because the specifics of TMT and IT activities in specific manifestations require different legal instruments or have more or less state regulation.
Participation of state bodies
Currently, the Antimonopoly Committee of Ukraine has the most powers in the field of purchase of assets, which controls the concentration and concerted actions of business entities, that is, it has the levers of direct influence on the transactions of the parties to the purchase and sale of certain assets.
We should not forget about the periodic attempts of tax authorities during tax audits to independently determine the reality of transactions for the taxpayer with additional tax liabilities and penalties, thus forcing the parties to "approve" their agreements through judicial appeals of their decisions in court.
Among the novelties of the legislation, it should be noted that with the entry into force of the new version of the Law of Ukraine "On Electronic Communications", the regulatory authority in this area will have an impact on market participants by:
— imposing regulatory obligations on providers of electronic communication networks or services with significant market power;
— holding consultations with market players in the implementing measures that have a significant impact on the relevant area, including the competitive principles for the allocation of the radio frequency spectrum allocation.
In addition, in certain cases, the regulatory authority will be able to carry out-of-court consideration of disputes between market participants.
Thus, when buying and selling telecommunications and IT assets, the parties should take into account both the requirements of the legislation of the relevant regulatory field and the current court practice in disputes with the above-mentioned state authorities in order to avoid the risks of negative decisions.
Special conditions of regulation of the TMT market contribute to the protection of investors' interests, but require additional checks before making a decision to invest in assets.
Take into account the specifics
Therefore, the issue of purchase and sale of TMT and IT-assets has its own specifics, but is inextricably linked to the general issue of protecting property rights and maintaining a level playing field for all market participants.
Considering the non-ideal operating conditions of these rules, qualified legal support for the purchase and sale of such assets is one of the important ways to protect the interests of the parties to these business transactions,"MK Legal Service" attorneys and lawyers are always ready to assist in solving your problems with the necessary experience and professional knowledge.
The article was published in the edition "Legal Practice"