How to Conduct Business Background Checks
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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.
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 Nexus 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.
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.
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.
Article provided by: Investigative Professionals LLC, ©2012 Information
Providers
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