Registering a business? BBB warns of common scamsDo you understand the business registration process? Are you aware of small business scams and how you could be targeted? In the wake of the recent “Compliance Services” scam that targeted businesses in northwest Florida, your BBB offers some tips to avoid other common scams targeting businesses.
Register your business as a legal entity. The first step in registering your business is deciding whether you are going to form a sole proprietorship, partnership, LLC, corporation, non-profit or cooperative. Your legal structure will determine what kind of taxes you’ll pay and who’s liable financially. Sole proprietors have unlimited personal liability for any debts the business incurs. In Florida, that liability is limited by the homestead laws. Limited liability corporations and limited partnerships must file with the Florida Department of State, Division of Corporations. Click on the Florida link on
www.business.gov and check out the Business Incorporation Guide.
- Fraud alert – filing fees. You receive an official-looking letter with a seal requesting a payment for an annual filing fee. If you do not pay accordingly, the letter cites that a statute will declare your business entity filing in default. Telltale scam signs include reference numbers that do not match your state assigned number, statutes that are not applicable to your business type, and a filing fee paid to a third-party business. No business is required to go through a third party in order to file documents or pay fees to the government.
Register your business name. In Florida, any business operating under a fictitious name or DBA - any business name other than the legal name of the business owner(s) – is required to register with the
Division of Corporations. Once you understand the business name registration process, be alert to these common fraud schemes:
- Fraud alert - DBA renewal. Similar to the registration scam, you receive a DBA or fictitious name renewal form from a company requiring payment to renew your business name. Though it appears official and cites state statutes, know that you can renew directly with your government office, and do not need to pay a third party to renew your business name.
- Fraud alert - domain name registration. You receive an invoice or email to register or renew the domain name for your online business. The scammer either wants you to sign up for a recurring service or secure a one-time payment. To sidestep this fraud, check if your domain name exactly matches the one mentioned. Make sure the sender is the same company you initially registered with. Also note the actual expiration date from your files.
Register for state and federal taxes. You must register with the IRS for an Employer Identification Number (EIN) if you have employees, are a partnership, corporation or non-profit. Use the EIN checker at
the IRS' website to see if your organization needs an EIN. You can also apply for an EIN online at
www.irs.gov. In Florida, you must also register your business with
Florida’s Department of Revenue. The state of Florida may require businesses to collect and/or pay Sales and Use Tax, Unemployment Tax, Corporate Income Tax or other taxes. Being informed will help you avoid these popular tax scams:
- Fraud alert - employment tax evasion. The scammer instructs you to stop withholding federal income and employment taxes. If you do so, you can be responsible for back payments, penalties and interest.
- Fraud alert - exempt organization tax avoidance. Some “for-profit” organizations may use your tax-exempt status in business transactions to avoid taxes. Read more about abusive tax avoidance transactions on the IRS' website.
Register for licenses and permits. If your business falls under a federally regulated or state-regulated industry, you need to apply for additional licenses or permits to stay compliant.
- Fraud alert - work permit fees. A multi-national company contacts you to complete a difficult, but well-paid project. They promise to compensate you for accommodations but require you to pay for work permits, visas and immigration fees. The offer is tempting because the message is tailored specifically towards your business based on research. Furthermore, the company lists itself on legitimate job sites to increase its credibility.
- Fraud alert – restaurant inspection. A scammer posing as a health official calls to schedule a health inspection appointment and threatens to fine you if you do not. Some “inspectors” have been known to bribe restaurants in exchange for a passing inspection. Legitimate health inspectors will carry state or county government-issued photo identification and usually do not schedule inspections in advance.
For additional resources on how to protect your business from scams, start with
bbb.org.