Help Protect Your Clients from Corporate Record Scams
Contributed by: BizFilings
Corporate records and annual report scams targeting small business owners are nothing new, but recently there has been another uptick the deceptive practices. Over 40 states have issued warnings detailing deceptive practices targeting business owners in their states. Tennessee has been even more aggressive. It recently enacted the Government Impostor and Deceptive Advertisements Act. This law explicitly bars communications that are deceptively similar to governmental notices, proscribes a notice that must appear on any solicitation for services that could be obtained free or for lower cost directly from the state, and establishes penalties for violations.
This area of business is ripe for scammers because states impose a variety of reporting requirements on businesses. Nearly every corporation and LLC must file an annual report in their formation state and in every state where they have registered to do business. And, many states impose recordkeeping requirements, particularly upon corporations.
Most business owners are aware of these state requirements, but are less familiar with the mechanics of complying with them. The scammers capitalize on this vague awareness. The deceptive communications generally fall into three groups: annual report, certificate of good standing, and corporate minutes.
The corporate minutes and good standing scams will cost your client money, but that is the only consequence—other than embarrassment at being bamboozled when it comes to light that the solicitation was phony. However, the annual report scams can have a significant impact on your client. Failure to file an annual report is one of the major reasons why a company loses its good standing with the state and, unless the failure is remedied, the corporation or LLC can be administratively dissolved. Several states, such as Louisiana, specifically note that despite the completion of the form and payment of the requested money, no annual report is ever filed with the state. This deception puts your client’s good standing in jeopardy.
In addition to a possible impact on good standing, all of these deceptive schemes carry the risk that your client’s information may not be adequately safeguarded. The forms request information in excess of what the states generally require. For example, one form requests a list of all of the shareholders’ names. The only guarantee that any information provided, including the credit card number, will be safeguarded and not released to third-parties is the assurance provided on the form. And, when you consider that Corporation Records Service is under investigation for fraud in multiple states—and has agreed to numerous consent judgments related to deceptive practices – any faith in the disclaimer may be ill-founded.
It is not surprising that many business owners are fooled. These companies spoof official-sounding names, official-looking documents, or names that are very similar to reputable business compliance services companies. “Corporate Records System” is a name commonly used, but some are even more misleading. For example, documents received by Alabama companies are from the “Division of Corporate Services.” In Washington State, scammers were using the name “Compliance Services,” while a legitimate business compliance company, “Compliance Services, Inc.” was licensed to do business there.
So, when a very official looking document arrives—often with a threat of penalties or other repercussions if the notice is ignored—the business owner may feel the need to comply. What can you do to protect your client from this trickery?
First, educate yourself on the scams that target business owners in your state. Check the secretary of state website for the states where your clients operate. Most describe the deceptive solicitations and name the companies involved. In many cases, the state has posted a copy of the misleading solicitation which can be helpful when communicating with your client about the issues.
Often, the deceptive activity is timed to coincide with the state’s annual report filing services. Familiarize yourself with the state business compliance requirements. Know what filings are required and when they are due for your clients.
Then, reach out to your clients. This is particularly important if they do not have a third-party registered agent, such as BizFilings, to monitor their business compliance obligations. Advise them to either shred the correspondence or report the solicitation attempt by contacting your secretary of state’s office. The secretary of state’s office can advise you on how best to proceed in your jurisdiction. If your client is not sure whether the solicitation is a scam or a legitimate offer to help streamline your paperwork responsibilities, the compliance experts at BizFilings will be glad to answer any questions that you might have. You or your client can contact one of our customer service specialists at 800-981-7183.
Visit aicpa.org/bizfilings for more information on the AICPA BizFilings program for AICPA members.