The Two Types of Contracts to Purchase a Business in Costa Rica
There are two types of contracts for the purchase of a business in Costa Rica. Before we get into the subject of sales contract, it is important to mention that in Costa Rica there is the
There are two types of contracts for the purchase of a business in Costa Rica.
Before we get into the subject of sales contract, it is important to mention that in Costa Rica there is the term “promise of sale”. The promise of sale normally entails a preliminary consensual agreement, which grants the parties a certain period of time to analyze the most complex economic and legal aspects of the business, prior to making the final decision of accepting or declining the definitive contract. This type of pre-contract, grants the parties a significant period of time to investigate other relevant elements of the business that, due to the hassle of the process, perhaps it could not be consider a priority at the time of the subscription of the promise.
A contract of sale and purchase is the one where a seller transmits or is forced to transmit the property of a good or right to a buyer in exchange for a fixed price. This contract has a mercantile nature.
There are only two parts to a sale and purchase contract: the seller and the buyer. Therefore, this type of contract is:
A transfer of ownership
The contract of sale is regulated by the third title of the Civil Code of Costa Rica and the chapter two of title two of the Commercial Code. In fact, Costa Rican law establishes that the sale is perfect between the parties if they agree on the business and the price.
The Sale of a Business
A business is considered any activity, occupation, or method for making a profit.
After learning its definition, we can question whether the sale of a business is a civil or commercial contract and how to differentiate it. In fact, Commerce Law regulates what is a commercial purchase-sale:
a) The sale of objects purchased to resell them in the same state or after they are made, done by a company, individual or collective.
b) The sale of real estate acquired for resale for profit, whether the property is transformed or not. The sale of real estate will also be commercial when it is acquired with the purpose of renting it or hosting a commercial establishment.
c) The sale of air and sea vessels; the sale of commercial paper, titles, and securities of any nature; and the sale of shares of commercial companies.
Due to the above, the First Chamber of the Supreme Court of Justice in its resolution number 649 of August 5, 2004 at 9:00 a.m, refers to this section of the Code of Commerce and concludes that:
“It can be concluded that according to the aforementioned Section, the mercantile sale and purchase in Costa Rica can be configured through three different aspects: the first derives from the subject, which is the businessman, who appears as the seller in the contract; the second originates in a subjective element, which is the idea of speculative purpose, not of the seller but of the creditor, the buyer; and the third, part of the nature of the object, which determines the nature of the contract itself.”
Since we are talking about a business sale and purchase issue, it could be concluded that according to the mentioned Section and the quoted court opinion, the business sale and purchase are of a mercantile nature.
Likewise, every contract of sale should be submitted to a small study to determine its nature. There is another type of contract that must be considered, which is the contract of a “mercantile establishment”.
Mercantile Establishment Contract
The mercantile establishment is an integral element of a commercial establishment, for the effects of its transfer by any title: electrical, telephonic installations and of any nature, the furniture, the existence in merchandise, the patents of invention and trademarks, the accounting that includes the complete records of the business, the industrial drawings and models, the honorary distinctions and the other rights derived from the commercial, industrial, or artistic property.
The sale of a commercial or industrial establishment includes all its elements and all its assets and liabilities, unless otherwise expressly agreed. In other words, the commercial establishment includes all the goods, whether assets, rights, or obligations (liabilities).
The transfer by any onerous title of a commercial or industrial establishment either directly, by auction, or by the transfer of the individual limited liability company to which it belongs, must necessarily be announced in the official newspaper “La Gaceta” by notice published three consecutive times, in which the creditors and interested parties will be summoned to appear within fifteen days from the first publication to assert their rights.
Most of the time the purchase and sale of a mercantile establishment are made before a Notary Public, that is to say, in a public deed.
We see then that for the purchase of a business, a contract is always necessary, and in this case, it can be a contract of sale. Therefore, it is always important to determine the parties and the price.
Furthermore, within the same contract, it is necessary to specify all that the business comprises, to protect not only the buyer but also the seller from any other situation that may arise.
For all the above, it is always important to be informed and guided with the help of attorneys who specialize in the matter, since contracts of this type may appear simple, but in reality, they can involve complexities that require professional advice.
If you are interested in purchasing a business and require legal advice on the matter, please do not hesitate to reach out to us.