It is true that the business world has undergone and continues to undergo unprecedented evolution. Companies can be established quickly, operate in multiple jurisdictions, and offer services globally. However, this exponential growth has brought with it certain challenges, especially the increasing difficulty of distinguishing between legitimate companies and those that may be involved in illicit activities or may not be entirely trustworthy.

Given the opacity and complexity of current corporate structures, it is essential to have effective tools and methods to determine the legality and reliability of a company.

The process of verifying the authenticity, solidity, and transparency of a company has become an essential component in decision-making for investors, business partners, and regulators. This is where concepts such as Ultimate Beneficial Owners (UBOs), KYB (Know Your Business), and KYC (Know Your Customer) processes come into play, offering a comprehensive solution to address these challenges.

In this article, we will see how we can determine the legality of a company, the relevance of identifying UBOs, and the fast and effective ways to discern if a company has financial problems or if it is trustworthy. Let’s go.

First of all, why do people create all these fake businesses?

The creation of fake companies usually comes down to sneaky money-related reasons. Here are some main reasons why people set up phony businesses and how they work:

  • Money Laundering: This shady practice is all about making dirty money look clean. Crooked cash gets funneled through fake businesses, often using fake companies that pretend to have lots of sales or profits to seem real. Shell companies, which are basically just names on paper without real assets or operations, are often used for this.
  • Shell Companies: These are the go-to choice for money laundering. Shell companies don’t really do much—they’re just names on paper. But they’re perfect for moving money around and hiding where it came from, which makes them super useful for people trying to wash their dirty cash.
  • Impersonation: Sometimes, shady folks pretend to be important people from real companies to get loans or trick customers. By using the good reputation of real companies, they can trick lenders into thinking they’re trustworthy or scam regular folks into buying fake stuff.
  • Avoiding the Law: Fake businesses are set up to fly under the radar, dodging government snoops who want to check out what’s really going on. They’re made to hide who’s really pulling the strings, making it easier for shady characters to do illegal money stuff without getting caught.
  • Scamming Investors or Customers: Fake companies promise investors big profits or sell fake products to regular folks, often pretending to be legit businesses to gain trust.
  • Tax Tricks: Fake companies cook the books to dodge taxes. They might fake receipts, say they spent more than they did, or mess with how they move money around to avoid paying taxes in certain places.

What info do you need to check if a business is legit?

When a company checks if another company is real and trustworthy before teaming up with them or doing business, it’s called “Know Your Business” or KYB. To figure out if a company is legit, they usually need to know:

  • The company’s official name
  • Where the company is located
  • Papers showing the company is officially registered
  • Any licenses the company needs for its industry
  • Tax details, like their tax ID number

How can you find out if a business is real and legit?

Now that we’ve talked about what you need to know to check if a business is real let’s go through how you can actually get this info. Here’s how you can find each piece of info you need to figure out if a business is legit:

Legal name

You need to know the official name a company uses to operate. This info is usually found in official databases, like a state’s Secretary of State portal in the US. This helps you avoid confusion with other names the company might use, like trade names.

Registered address

A legitimate company should have a physical location somewhere. If it doesn’t, it might be a shell corporation, which doesn’t really do business and can be used for shady stuff. Sometimes, companies have more than one address, so make sure you check them all and confirm they’re real. You can do this by comparing info from official sources and using tools like Google Maps.

Registration documents

This is paperwork that proves a business is allowed to operate in a certain place. In the US, you can usually find this on a state’s Secretary of State portal, but sometimes, you might need to create an account or pay fees. You can also request this info directly from the Secretary of State’s office, but it might take a while and cost money.

Industry-specific licenses

Certain types of businesses need extra licenses from special agencies to operate legally. This applies to industries like construction, finance, insurance, healthcare, real estate, and transportation. It’s important to make sure a business has all the right licenses.

Tax info

All legit businesses have a special number they use for financial stuff, including filing taxes. This might be called a tax identification number (TIN), employer identification number (EIN), or legal entity identifier (LEI). Having this number means a business is probably doing things by the book. As all the other info we already mentioned, you can find this info on a state’s Secretary of State portal, and it’s smart to confirm it with a tax agency like the IRS.

Who are UBOs, and why are they relevant to understanding the legal and fiscal health of a company? 

When determining the legal and fiscal health of a company, it’s essential not only to examine the legal and financial aspects of the company itself but also to consider the people behind it. This broader approach leads us to the concept of UBOs, or Ultimate Beneficial Owners, and their crucial relevance.

UBOs refer to:

  • Individuals who may be legal owners of a company.
  • Individuals or a group of individuals who have control over the entity.
  • It’s possible for an entity to have multiple beneficial owners or owner groups, intentionally hiding the identity of those with control interests.

The “ultimate beneficial owner” of an entity is defined as someone who:

  • Owns 25% or more of the share capital.
  • Exercises 25% or more of the voting rights.
  • He or she is the beneficiary of 25% or more of the capital.
  • He or she is a “nominee director” hiding the real owner’s identity or engaging in unauthorized activities.
  • He or she may be a company acting as a “corporate director,” establishing complex corporate structures to engage in illicit activities.
  • Holds “bearer shares,” allowing anonymity and potentially being used for activities like tax evasion or money laundering.

Verifying the identity of a UBO can be complex due to the intricate nature of modern corporate structures and sometimes the lack of transparency. However, technology has brought cutting-edge solutions that simplify this process.

There are remote verification technological tools that employ advanced techniques to ensure that the person behind a company is indeed who they claim to be (we’ll reveal the secret shortly).

Apart from these techniques, verification can also rely on databases, both public and private, to gather additional information that helps authenticate the identity and reputation of a UBO.

Finally, it’s crucial to emphasize that any UBO verification process must align with local laws and regulations. This entails ensuring that the process meets current security and privacy standards and complies with Know Your Client (KYC) and Anti-Money Laundering (AML) regulations. Ultimately, a company’s integrity depends not only on its finances but also on the people who lead and control it.

How can you quickly determine if a company has financial problems or if it’s trustworthy? 

Well, luckily, we’re going to provide you with a fast, efficient solution that will save you a lot of time and costs. It’s the automated KYB process known as “Know Your Business”. Among the standout KYB solutions is Silt‘s, which offers multiple benefits to its users. But what are its benefits?

  • Time-saving: Silt automates everything from document collection to verifying the representatives of the companies you deal with. This means less time spent and less need for specialized verification teams.
  • Boosts growth: With Silt, you can handle a greater number of verifications without needing to proportionally increase your human resources, thanks to its automated data collection process.
  • Risk reduction: Decreasing the risk of fraud and potential regulatory sanctions is simpler with robust verification. Silt helps you comply with all regulations and legal requirements.
  • Simplified analysis: Silt allows you to manage the entire onboarding process from one place, offering verifications of relevant company personnel, financial information, and official documents.
  • Information retrieval: With Silt, you can easily access your clients’ information, which is available in government records worldwide.
  • Thorough verification: From discovering UBOs to biometric verification of legal representatives and checking KYC and KYB UBOs, Silt covers all necessary aspects.
  • Personalization and adaptability: You can tailor the verification to your company’s specific needs, from basic searches to detailed information on shareholders and beneficiaries.
  • Advanced Artificial Intelligence: Silt employs the latest AI technology to extract crucial information from documents provided by your clients. If you need additional information, simply request it through the chat.
  • Reusable database: Once a company has been verified by Silt, its digital identity is stored, making future onboarding processes much quicker and hassle-free.

Ready to change the way you verify and interact with other companies? Try it now! Request a free demo of Silt and discover how it can revolutionize your verification processes.