Due Diligence for Business Acquisitions in Costa Rica

When purchasing a business, the buyer must learn about all factors of the business in order to determine if the purchase is a sound investment. The process used to learn these factors is called due diligence, which essentially means doing your homework on the business before committing to the transaction.

Due diligence is not a single action but a structured review process. Its purpose is to identify financial exposure, legal risk, regulatory compliance issues, and operational realities that may affect the value of the business or the viability of the acquisition. Proper due diligence allows a buyer to move forward with clarity, renegotiate terms if necessary, or walk away from a transaction that presents unacceptable risk.

Scope of Due Diligence Depends on the Type of Business

The scope and magnitude of a due diligence investigation varies depending on the nature of the business being acquired, the industry in which it operates, and the structure of the transaction. That said, there are core areas that should always be reviewed.

To begin the due diligence process, the buyer will typically provide the seller with a checklist of documents and information requested for review. The materials requested should be sufficient to allow the buyer to understand how the business operates, how it complies with Costa Rican law, and what liabilities—known or unknown—may exist.

This article outlines the most common categories of information reviewed during due diligence and highlights additional considerations based on specific industries.

Financial Due Diligence

From a financial perspective, due diligence focuses on understanding the financial health of the business and verifying that the numbers presented by the seller accurately reflect reality.

Common documents reviewed include:

• Income statements

• Balance sheets

• Cash flow statements

• A detailed breakdown of real estate and equipment

• Tax compliance records

• A summary of outstanding debts and their terms

• A list and summary of current investors

Reviewing these documents allows the buyer to assess profitability, liquidity, debt exposure, and long-term sustainability. Financial inconsistencies, unexplained liabilities, or irregular tax compliance can significantly affect the value of the business and should be carefully analyzed.

Legal Due Diligence

Legal due diligence examines contracts, registrations, and legal obligations to identify potential risks, disputes, or compliance failures.

Documents commonly reviewed during legal due diligence include:

• Lease agreements

• Purchase and sale agreements

• Distribution agreements

• Sales contracts

• Employee and independent contractor agreements

• Intellectual property documentation, including trademarks, copyrights, trade secrets, and patents

• Articles of incorporation

• Business registration documents

• Labor compliance records

This review helps identify hidden liabilities, unresolved disputes, unfavorable contract terms, or regulatory exposure that may not be immediately visible from a financial review alone.

Regulatory and Industry-Specific Compliance

Depending on the sector of the business being acquired, additional regulatory elements may apply. These requirements can vary significantly from one industry to another and are often a decisive factor in determining whether a business is legally operable.

Additional elements that may require review include:

• Environmental permits

• Waste management compliance

• Industry-specific licenses and permits

• Insurance coverage

For example, businesses involved in transportation require specific permits depending on what or who is being transported. Transportation services related to tourism require additional authorizations.

There has also been increased investment in microbreweries, which typically require environmental approval from SETENA for waste management, as well as permits from the Ministry of Health for the specific beverage being produced.

Hotels must be registered with the Costa Rican Tourism Board, and real estate agents must comply with registration requirements linked to SUGEF. Each industry carries its own regulatory framework, and failure to comply can result in fines, closures, or invalidation of the business operation.

Publishing and Registration Requirements

Costa Rican law requires that certain business transactions be made public through formal publication and registration procedures.

Article 13 of the Costa Rican Code of Commerce mandates the publication of a notice in the official government newspaper, La Gaceta, whenever the creation, dissolution, sale, transfer, liquidation, or modification of a legal business entity takes place.

The purpose of this publication is to make the transaction public knowledge so that potential creditors or interested third parties may assert claims or raise objections if applicable.

Additionally, Article 479 of the same code establishes that when a commercial or industrial facility is sold, notice must be published three consecutive times in the official newspaper. Creditors and other interested parties then have 15 days following the first publication to appear and assert their rights.

Failure to comply with these publication requirements can expose the buyer to undisclosed liabilities or legal challenges after the transaction is completed.

The Hard Truth About Due Diligence

Due diligence is time-consuming, inconvenient, tedious, and sometimes expensive. However, upon completion of the process, the buyer should have the information necessary to determine whether the real value of the business justifies the purchase price.

Proper due diligence helps identify:

• Issues the purchaser may face in the future

• The likelihood that the business will be a successful investment

• Whether the purchase price reflects the true value of the business

Ultimately, a buyer should know as much about the business being acquired as they would want to know about their own business. That level of understanding allows the decision to purchase to be made with confidence rather than assumption.

Feel free to reach us with your questions or comments.