Whether you are dealing with a small company or a large corporation, checking the legitimacy of a business is essential to avoid fraud, financial loss, and misusing of personal information. Although a company’s website or online presence might have valuable information, it should not be used as the primary source of information about the company and its credibility. Verifying business registration and contact information, company background, licenses, reputation, and payment methods will help detect undesirable intentions of a company ahead of a transaction.
For businesses, similar checks are carried out during the due diligence process or Know Your Business (KYB) to ensure they are entering a reliable entity. For consumers, a less formal due diligence process can also protect them when buying from an unknown firm. The process might take some time, but it is worth finding warning signs and being able to make a safe choice when sharing their personal data or money.
How to Verify a Company Before You Buy?
Fraudsters can misrepresent illicit businesses as legitimate ones by creating websites with professional appearances and providing false information or unsubstantiated claims. Check if the attributes of a company offering a specific product or service are legitimate before buying its stuff or utilizing its services.
Several of the following signs can help identify an unknown organization and its level of legitimacy. It is essential to remember that no one sign is enough to determine if a company is fraudulent; instead, cross-verification with multiple sources is necessary.
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Search for the Company’s Business Registration
One of the first steps in determining if a company has a legitimate business presence is to make sure that it is registered with the appropriate government authority. Check the official government Secretary of State website or the appropriate state business registry to research the company, including its legal name, current status, and registration details.
Keep in mind that a company’s state of registration may be different from the state where it operates. Many businesses are incorporated in one state but then conduct business, operate offices, or register to operate in other states. If you can’t find a company in the list of companies for one state, don’t assume that the business is not registered with any official body, check the other relevant state registries of other states that could be associated with the business.
A business registration can indicate that a legal entity is registered with a government authority, but cannot be used to verify the trustworthiness, reputation, financial stability, and safety to buy from the company itself. Checks on complaints, licenses, business history, and payment practices can also help identify these factors.
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Verify the Company’s Contact Information
It is essential to check the company’s contact information to ensure that the business is legitimate or not. First check that the address on the company’s website is the same as the one on Google Maps. Moreover, double-check their contact details by calling and emailing the company. A competent operator should be able to answer all questions regarding the company, its goods and services provided and other aspects.
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Analyze the Website and Domain
Examine the company’s website and domain to ensure that they are consistent with the business they claim to be. If appropriate, review the domain registration information and see if it matches what the company says it is, especially if it’s a recently-registered domain. A discrepancy here could indicate malicious intent, but a major discrepancy between the domain history and the company’s claims may warrant further investigation.
Look for suspicious domain names, copied content, dead links, unrealistic claims, or anything that doesn’t add up with what you know. HTTPS is helpful in keeping your data private and secure while it’s in transit, but it doesn’t prove that a business is legitimate.
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Check the Company’s Business History
Research the organization’s history and verify if the information provided is factual. Check the company’s history against state records, professional profiles, news resources, and other databases for inconsistencies.
A company with little publicity might not have much of a history online. This is normal for smaller organizations that have been operating for a short period. What matters is that the company does not deviate significantly from the facts that can be gathered from external sources.
If the company boasts of long experience in the industry, but the provided data does not match the available records, ask questions before spending any money.
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Verify Ownership and Leadership Information
Where information is publicly available, research the company’s owners, founders, directors, executives, or other leaders. Cross-check names and details in reports to see whether these people can be identified.
In the case of companies that make claims about their industry experience, professional expertise, or connections, such research may be helpful. At the same time, note that private companies are not obligated to provide such information publicly, so the absence of owners’ data may not be a sign of fraud.
The aim of this check is to verify whether the company’s claims are not exaggerated, rather than to collect information about the company’s owners.
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Verify Tax Information
Checking the relevant tax information can serve as an additional security measure when making an expensive purchase, establishing a high-value contract, or any other significant business transaction or cooperation. The entity’s Employer Identification Number (EIN) is a unique Tax ID issued by the Internal Revenue Service (IRS) to companies and other business entities registered with them.
To verify the information, you can ask for the necessary tax documents (such as the W-9 form) if the potential value of the cooperation exceeds the limits. Ensure that the data matches the company’s registration in the state and the documents provided. Double-checking the details in case of any discrepancies in the tax information is better before finalizing any expensive project or large purchase, as it protects you from numerous potential frauds and scams. Remember that EIN is mainly a tax-related document, so checking the details may not always be possible in the public database maintained by the IRS.
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Verify Licenses and Professional Credentials
Before buying any regulated product and/or professional services from a company, double-check the organization’s licenses, permits, certificates, or registrations to make sure that the entity is authorized and/or certified to provide the desired product/service in your state. The list of required licenses and papers can differ depending on the location and occupation. Therefore, it is better to confirm the company’s credentials and check the status of their licenses with relevant licensing boards, agencies, or other official websites rather than on the business’s website.
On the websites, make sure to find your reference to a specific company, double-check its license or permit number, status, expiration date, and other available details. You may also want to review disciplinary history reports and ensure that the license is not suspended. A license does not guarantee that the practice or business is of good quality, but a company or service with an unverifiable license is a red flag. This precaution is particularly relevant and applicable to buying various professional services that require a license.
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Search for Complaints, Lawsuits, and Regulatory Actions
Before buying, it is essential to research the company’s history with clients and regulators. A simple search and analysis of information about the company on the web can significantly reduce the risks of fraud and deception. In the search, one should look for the company’s name, together with keywords as “complaint,” “refund,” “lawsuit,” or “consumer complaint.” Moreover, if the company belongs to a highly regulated industry, it is necessary to study the databases of government regulators, state attorney generals, state courts, and licensing authorities.
When researching, one should not look at the complaints of a single customer but rather at the overall trends. Thus, if you find more than one customer who has had a problem with refunding money or receiving goods that were not ordered, this is a red flag.
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Check the Payment Method and Buyer Protections
Consider how the company accepts payments and what protections are available in the case of a dispute. Credit cards, generally speaking, offer the best dispute resolution services. Some payment services and marketplaces have buyer protection programs, but the coverage and restrictions vary, so it is necessary to study the conditions carefully. A guarantee of a refund or a money-back guarantee, even the absence of such a clause, does not necessarily mean that the company is fraudulent, but it should arouse suspicion.
Be careful of sellers who ask for payment in gift cards, cryptocurrencies, or other unrecoverable payment methods. Study the refund policy and dispute resolution rules of the chosen payment system or marketplace.
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Evaluate the Company’s Online Presence
A company’s presence on the web can provide valuable insight into its background, reputation, and interactions. Rather than looking at one or two sites, you should look over multiple websites in order to get a clearer and more complete view of the company. The following areas should be researched:
- Website: Look for accurate company information, professionalism, clearly stated contact information, recent content, and authentic customer information.
- Social media: Check that the company has active accounts, consistent branding, frequent posts, and responding to questions and comments from customers.
- LinkedIn: Search for a company profile, professional connections, business-related posts, and a history of regular activity. You may also research the public professional activity of the company executives, if appropriate.
- News and media coverage: Search for articles in national, local, industry-specific, or business publications, as well as any awards or honors received, which should also be independently verifiable.
- Online reviews: Compare and contrast reviews on sites like Google, Yelp, and Trustpilot, and weigh them against one another, rather than simply looking at a star-rating system. Additionally, pay attention to the number, timing, specificity, and consistency of reviews, since these often contain more information about a company than its overall rating.
Advanced Verification: Automated KYB for Businesses
Verifying the legitimacy of a company may involve research into business registry, ownership structures, licenses, contact information, reputation, and other data. There are automated Know Your Business tools that can make this research more efficient by bringing multiple verification checks into one process.
KYB services can be used to verify whether the target company has an official existence, possesses relevant data about the entity, owns appropriate licenses, and other documents. An automated KYB service may depend on a particular provider’s data sources and business-specific rules to detect discrepancies or raise any flags. The verification process usually consists of the following steps:
- Business identity verification: Typically includes checking company’s name, legal existence, and registration;
- Address and contact verification: Ensure that the address and other contact details provided by the company are accurate and match the registry.
- Ownership checks: Scan the ownership structure and directors’ information, including Ultimate Beneficial Owners if available.
- License verification: Confirm that the company acquired relevant industry-specific permits.
- AML and sanctions screening: KYB screening to identify whether any of the company’s directors, owners, or associated individuals/entities appear on sanctions lists or other restricted entity databases.
- Risk assessment: Flags inconsistencies or other information that may require additional investigation.
- Ongoing monitoring: Can notify organizations when important business information or risk indicators change.
Red Flags to Watch For
While seeking information about the company, look out for any red flags that may suggest that the business is not legitimate or trustworthy. While having a short track record does not necessarily mean that the company is illegitimate, entities that do not provide adequate information should be investigated further. Some of the warning signs that may indicate a red flags include:
- Conflicting company names, addresses, or contact information
- Unverifiable licenses, certifications, or business claims
- Suspicious or repetitive customer reviews
- Pressure to make an immediate payment
- Unusual payment requirements
- Missing or unclear refund and return information
- Claims that cannot be confirmed through independent sources
- Representatives who avoid reasonable questions or provide inconsistent information
Don’t Rely on a Single Check
No single registration, review, security certificate, business address, or online profile can guarantee that a company is legitimate. Any business, whether it is real or not, can have a history on the Internet of only a few years. A fraudulent seller can also have a high rating in the BBB or other independent business directory. A potential customer should compare different pieces of information and check out large discrepancies before buying from an unknown company.
Conclusion
Checking whether a company is legitimate before making a purchase can help you avoid possible risks and problems. Instead of asking if it is a professional website, has positive reviews, or is registered, verify specific details through multiple independent sources.
Check the company’s registration, contact details, website and domain, business’s history, ownership, licenses, complaints, and money-related aspects. Additionally, you may want to confirm the company details using tax or KYB verification if a business has high value.
Any verification step alone cannot confirm that a business is genuine, but several such actions cross-checked with each other can highlight some red flags. It is better to spend a little time and effort researching a company that you are unfamiliar with before paying them or giving any personal information.
