Use caution when setting up a new business

Use caution when setting up a new business

Correctly filing the official paperwork can be a nerve-wracking part of setting up a new business. New business owners can easily confuse official-looking correspondence with a real legal requirement. Here is how to spot a con that tricks new business owners into overpaying for an unnecessary Certificate of Existence. Learn more at www.bbb.org/all/llc-scorp-sole-proprietorship-choose-a-business-structure.

How the scam works

You are starting a new business and register it as an LLC. Afterward, you receive a letter or email from what appears to be a government agency. The correspondence does not explicitly say it is from the government, but the wording mimics other letters you received from official sources. The message informs you that you have “one step left” before you can obtain your “Certificate of Existence.” It is easy. Send the organization a fee ranging from $80-$120, and they will mail you the document.

Do not fall for it. The letter may state in fine print that the certificate is “optional,” but overall, the tone suggests it is a legal requirement. It is not. Businesses may wish to obtain a Certificate of Existence in certain circumstances such as a loan closing; however, it is not a required part of setting up a new company, as the correspondence implies. If you do need a Certificate of Existence, visit your state’s website at bit.ly/IRSState and purchase one directly. States charge about $10 for this service.

One new business owner made this BBB Scam Tracker report: “I received a letter in the mail from a fake company (that has been) scamming new business LLC registrations since at least 2019. The envelope I received does not explicitly say that it is a nongovernment agency, and they request a payment of $112.50 to be sent within two weeks. They are quick too. They mailed me this the day after I registered (my new business). If you read carefully, it says you have one step left to order to buy your optional Certificate of Existence form from Connecticut Certificate Service.”

How to spot this scam

Get familiar with the state laws that apply to your business. Check your state’s government website to find out what business certificates and licenses are required by law, if any.

Know that new business owners are targets for scams. Stay alert to the possibility of being targeted by a scammer. Do not take everyone at their word and be wary of unsolicited communications. Do research before paying for any services or certificates that anyone claims you need to do business.

Review payment notices carefully. Scammers sometimes send fake invoices (www.BBB.org/article/news-releases/16914-bbb-tip-fake-invoice-scams) hoping you will assume they are legitimate and pay without thinking. Never pay without confirming an invoice is real.

Do not panic. Scammers like to use scare tactics to make people pay them money. Do not make a payment just because someone threatens you or your business. Always make sure the request for payment comes from an official source before you pay.

For more information

If you have been the victim of a scam, report it at www.BBB.org/ScamTracker. Your report can help others avoid falling victim to scams.

Visit www.BBB.org/canton or call 330-454-9401 to look up a business, file a complaint, write a customer review, read tips, find events, follow on social media and more.