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How to Conduct Business Background Checks

By: Joe Hoover, Anni Adkins and Dr. Lew Deitch
March 15, 2007

When dealing with another business entity or service provider, the common questions that must be asked are: "Can this company be trusted?" or "How much is known about this company?" Doing business in today's reality is fraught with potential risks. There are news stories about contractors who secure deposits and then never return to do the job, or accounts about companies that defraud investors out of millions of dollars. Remember the recent national scandal regarding Enron Corporation.

When intending to establish a relationship with a company, it is important to be certain that they are reputable, and that their image is not marred by liens, judgments, bankruptcy or civil action, either against the entity or its principals. 

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The following straightforward steps can save a business many future problems in dealing with a new entity:

FINDING BASIC COMPANY OR PRINCIPAL INFORMATION

Always start at the local level, especially for a small company, as this may be the only source of information available. All companies must conform to local laws or codes, since they essentially are rooted in a community. City or county records are a good place to start. These will provide information as to the origin of the business, tax liens, judgments filed and criminal complaints or actions pending against the business or its principals. And this information is normally public record and available to all who ask.

The Chamber of Commerce and Better Business Bureau are important sources, as most maintain open records of complaints filed against the company or its principals. If the company is in construction or equipment servicing, the local Registrar of Contractors should be queried.

Published articles can expand search parameters regarding the company or its principals. It is easy to check by business name and the names of individuals through the Internet, local newspaper archives or in industry-specific journals. One important service is Lexis Nexis News, which will do the legwork for a fee.

CHECK THE COMPANY'S REPUTATION AND REFERENCES

References can be an excellent source of confirmation of both a company's reputation and its ability to live up to its commitments. Before doing business with or hiring a company to perform a service, it is imperative that references be contacted by either telephone or e-mail. Generally clients or former clients will provide a well-rounded picture of the company in question and its personnel.

Another valuable reference, especially in the financial area, is the company's vendor list. Anybody who provides either goods or services to a company can attest to their credit worthiness.

Business and professional licensing provides still one further source of important information regarding a business or professional entity. This is especially significant with regard to any company from which services are contracted. Such companies often list their license numbers on their business card, knowing that potential clients may wish to check upon their reliability and integrity. If the business uses a trade name, then it is also important to obtain the names of the owners or managing principals. Many governmental agencies have special "Doing Business As" files that cross reference company trade names with owners or directors.

Important agencies that maintain public records containing detailed information for business and professional or corporate entities and their operatives include:
  • Secretary of State's Department of Professional Regulation
  • State Accountancy Board
  • State Corporation Commission
  • State Registrar of Contractors
In most states, the Secretary of State's office has a corporation division database that enables searches on partnerships, corporations and LLC's.

If the business being checked is a corporate entity, it will be in possession of a Federal Employer Identification Number (FEIN). This number is important because it provides information regarding the company's workforce and its employee compensation.

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EXPLORING THE BACKGROUND OF A COMPANY AND ITS PRINCIPALS

Depending upon the depth of background desired, it may be desirable to conduct a more in-depth inquiry into the activities of the company or its principals. The issue of litigation, either past or present, is vital in understanding the scope of the business practices. Has the company or its operatives been sued? Are there any records of judgments or liens outstanding? Such information, especially if repetitive in nature, is significant, as one does not want to do business with or hire a company that has been sued repeatedly.

County court records on lawsuits, liens, tax liens, judgments and bankruptcy filings are public record and can be inspected upon request. State and federal court records relative to liens, collateral, litigation and judgments are also available. Federal court records also contain information regarding suits brought by the government against companies or principals.

Criminal records should always be checked if any doubts have arisen regarding the company or its principals during the early phases of investigation. Many investigators automatically conduct criminal history searches regardless of what preliminary information uncovers. Records of criminal activity are kept on the municipal, county, state and federal level depending upon the type and severity of the crime. The most complete source will be found in county courthouse archives. State and federal penal institutions also maintain records on inmates both past and present.

When doing a criminal search, it is important to have the name and date of birth of the individual for whom the records are being requested. When searching any criminal database, remember to consider all variations of an individual's name as well as possible aliases.

There is no national criminal database available to the public; thus the easiest way to do an in-depth criminal records search is to employ the services of an information provider, if it becomes imperative to conduct a comprehensive national search.

SEARCHING FOR COMPANY AND PRINCIPAL'S ASSETS

The three most basic assets that can be discovered are real estate, automobiles or other significant property such as a boat, RV or other tangibles.

The county assessor's office is the venue for property records, which are available to the public. These records contain the name(s) of property owners, the assessed valuation, lien holder or lending institution name, if the property carries a mortgage.

Individual and company vehicles are registered with the state department of motor vehicles. Boats are registered with the Coast Guard and aircraft are listed with the Federal Aviation Administration.

Every state governs loans between individuals and companies. Generally information regarding property, equipment or vehicles used for collateral - listing the debtor parties and the secured parties plus their addresses - can be found in these records in accordance with Uniform Commercial Code filing rules.

[Order a Business Background Report NOW]

COMPANY BUSINESS CREDIT REPORT

It is imperative to know a company's credit rating before embarking upon any business relationship. Knowing what possible liabilities could be faced should the company not fulfill its commitment is a significant factor. The prospective company's legitimacy is a vital piece of knowledge.

Company credit reports are available for any other business to inspect. The major sources of such information are Dun & Bradstreet along with the three major credit bureaus. However, personal credit reports are not public record. Many large corporations publish annual reports that are available through their public information office.

SUMMARY

 The following checklist provides all of the key pieces of information that comprise a complete business profile when doing a background investigation:
  • Business Name
  • Business Address
  •  Business Telephone Numbers
  • Names of Business Owners
  • Names of Key Officers, Managers and Employees
  • Professional Business Licenses
  • List of Products Produced or Services Offered
  • Names of Suppliers, Buyers and Competitors
  • Business Credit Ratings
  • Profit and Loss Statements
  • Assets
  • Litigation, Bankruptcies, Liens and Judgments
  • Criminal Records for Company or Principals
For publicly held companies, the Securities and Exchange Commission, the Department of Transportation and the Federal Communications Commission keep vital information regarding corporate entities. The Federal Bankruptcy Court and Federal District Courts maintain records about all personal and business bankruptcies.

Security and Exchange Commission records contain:
  • Annual Business and Financial Reports
  • Quarterly Financial Reports
  • Unscheduled Materials Events
  • Annual Reports to Shareholders
  • President's Letter to Shareholders
  • Proxy Statements
  • Director's Titles, Ages and Remunerations
  • Registration Statements
  • Financial Information Filings
  • Prospectus on Stock Offerings
  • Williams Act
  • Corporate Mergers and Acquisitions
  • 20-F Annual and Financial Report Filed by Non-U. S. Registrants
A vast amount of information is available through those providers who specialize in the collection and distribution of business data. Most of what is needed for a successful business background check can be obtained through the services of one of these companies. It is quick and economical and saves both time and money.
 

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Article provided by: Investigative Professionals LLC, 2012 Information Providers
If you would like to reprint this article, please email us.
 

 
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