Legit corp?

October 21, 2009 12:45 PM

What are the signs of a legitimate corporation? What do legitimate corporations do that fake ones don't?

I have to figure out if companies are legit or sham in an area where there are lots of benefits to being a sham. I can get ANY documents from the company, such as employee rolls, tax returns, charter papers, etc., and I can call them up and ask them questions. What should I ask for to make sure the company I'm looking at is legit?

Here's an example: Company X gets rejected from the benefit they're requesting from me. Next year, they apply under the name Company Y, but it's the same company run by the same person or people (usually these are small companies or sole proprietorship). How can I tell that Company Y is a legitimate different company and not just Company X in Y's clothing? What makes this more difficult is one person may found 5 or 6 companies and they all will apply for this benefit.

posted by lockestockbarrel to law & government (11 comments total)

You need a Dunn & Bradstreet or Lexis account. You can pull all kinds of data about companies from sources like that, and it will be better than what the companies themselves provide because it will be harder to fake.

Barring that, I would definitely ask for articles of incorporation and certificate of good standing from the state Secretary of State and also last year's state and federal tax filings. Big red flag if they have no tax filing.
posted by Mid at 12:55 PM on October 21

Different articles of incorporation == different company. But it sounds like you have some specific and subjective criteria in mind for "legitimacy", such as, same directors or same sole-proprietor == same company. What if [A, B, C, & D] sit an X's board, and [A, B, C, & E] sit on Y's. Same company or not same company? It sounds as if you are the only one who can decide. There are lots of ways to pull together a corporation with varying degrees of "sameness" between its and another's "complexion". My guess is that you find a certain Mr. A's business practices not to your liking, but you perhaps can't identify A. Is that the root of the issue?
posted by TruncatedTiller at 1:04 PM on October 21

How can I tell that Company Y is a legitimate different company and not just Company X in Y's clothing?

It's not always the case, but with companies on the scale you're talking about, you often see this happen through a DBA- looking up their D&B number or Federal Tax ID should clear that up quickly.
posted by mkultra at 1:05 PM on October 21

It might be helpful if you could describe the benefit.
posted by chesty_a_arthur at 1:06 PM on October 21

Definitely what Mid said, but also you might want to check out some programs related to the FTC's Red Flags Rule, which may have useful information in helping detect fraud from small businesses / sole proprietorships.

Red Flag programs are generally geared towards detecting people trying to defraud businesses, but it may apply to your situation as well, especially in the case where it's one person hiding behind multiple corporations.
posted by corprew at 1:08 PM on October 21

In many states, you can check online to see if a corporation is in good standing, and you can often find some additional information related to the corporate history of corporate entities.
posted by iknowizbirfmark at 1:13 PM on October 21

All of the above are good ideas to get information without the company's cooperation. But you can get more with cooperation.

Ask to inspect the corporate books, which will disclose whether and when required meetings have taken place. They should include lists of shareholders.

The company should have a record of receipts and expenditures, and very often a balance sheet. Ask to speak to any outside accountant or bookkeeper.

The payroll will tell you who works for the company. Talk to them and find out what they do. Find out which outside companies and agencies they deal with, and talk with them.

A legitimate company will have answers to these inquiries. A sham one will show little, or will be evasive.
posted by megatherium at 2:01 PM on October 21

Many states have searchable databases of corporations, many times offered by the Secretary of State of the state where the corporation is incorporated. At at minimum this will tell you that the corporation is legitimately registered in the state. Many states offer more information, including any officers of the corporation, and some offer free online copies of the articles of incorporation. Frequently, it takes a little work to get used to how to search the databases.

Googling the name of the state and corporation will usually get you the right place to start within the first few results.
posted by jefeweiss at 2:05 PM on October 21

"Ask to inspect the corporate books, which will disclose whether and when required meetings have taken place. They should include lists of shareholders.

The company should have a record of receipts and expenditures, and very often a balance sheet. Ask to speak to any outside accountant or bookkeeper."

I'm not sure what sort of "benefits" these corporations are trying to receive, but almost no legitimate corporate entity is going to let you inspect these things or talk to these people about the business absent extraordinary circumstances.
posted by iknowizbirfmark at 3:00 PM on October 21

"Holding"companies or "parent" companies are those which hold more than 50% of the stock in another company and which can, therefore, control most aspects of the subidiary's management. The ones I've been familiar with were unthreatening, but others might be able to obscure real ownership to a degree. Being able to trace majority ownership, and the ownership of the parent would be important. For example, I worked for the sales arm of an equipment manufacturer, which had an 80% stake in my company, and my company owned 100 percent of its financing arm. They all carried variations of the same brand name, so it was transparent. There's a lot of disclosure in a company's SEC filings which might answer a lot of questions.
posted by path at 4:29 PM on October 21

Can you describe what you mean by a legitimately different company? Corporations and the laws that govern them are very formalistic; do you want to know if they're different companies in function as opposed to being legally different companies?
posted by craven_morhead at 9:04 AM on October 22