Fraud in Starting a Business in the USA: How to Avoid Issues

Starting a business in the USA is an attractive prospect for many entrepreneurs due to favorable conditions and vast opportunities. However, as the number of new companies has grown, so have instances of fraud. According to the National Center for Entrepreneurship Statistics, 15% of new businesses face registration issues due to unscrupulous firms. Scammers take payment and then disappear, leading to delays in receiving crucial documents. This complicates the opening of bank accounts and the commencement of business activities. In most states, reports must be filed within 45-60 days, and missing these deadlines results in penalties.

Why It’s Important to Choose a Reputable Firm

While the process of starting a business in the USA may seem straightforward, fraudulent firms can create significant challenges. Without proper registration documents, entrepreneurs cannot open bank accounts and are at risk of paying fines for late filings.

Our Experience

At SMAR GLOBAL, we too encountered issues when opening our office in the USA. The contractor responsible for registration disappeared after receiving all the documents. We were unsure if the company was even registered, as the contractor wasn’t responding to messages on Instagram. After a considerable delay, they finally made contact and informed us that the registration was successful, sending over the documents. This caused considerable inconvenience and stress. It’s particularly difficult when the contractor is a freelancer, as there are no other employees to turn to in case of problems.

Client Example

A company approached us needing accounting support for their newly formed LLC in the USA. We scheduled a meeting and requested the company’s organizational documents. To our surprise, the documents belonged to other people, and some necessary papers were missing. The client explained that the first agent, who had promised to handle everything, completed only part of the work and disappeared after receiving payment. Communication had taken place via Telegram, and when our client couldn’t obtain the documents, the agent simply deleted the chat. A second agent registered the LLC but also vanished after payment, leaving the job unfinished.

Our client was eventually able to access the registration platform and retrieve the missing documents. We then fully engaged in the process and assisted with setting up a bank account.

As a result, the process of obtaining registration documents took nearly four months, whereas it usually takes three to four weeks.

How to Protect Yourself When Registering a Company in the USA

Signs of Fraud to Watch Out For:

1. Unclear payment terms: If the contractor insists on full upfront payment without providing a detailed contract, this could be a red flag.
2. Lack of contact information: Inaccessible contact details or evasive responses regarding the office and staff.
3. Too-good-to-be-true offers: Extremely low prices and unrealistic deadlines.
4. No reviews: Either there are no reviews at all, or they appear fake or repetitive.
5. Pressure tactics: Attempts to rush the client into making a decision without the opportunity to discuss or review the details.

How to Ensure the Contractor Is Reputable

To avoid issues when choosing a contractor for business registration, pay attention to the following:

• License and accreditation verification: Ensure the contractor has all the necessary licenses and accreditations.
• Experience: Check the contractor’s experience in your specific business sector.
• Client reviews: Review feedback from previous clients and reach out to them for recommendations.
• Legal status check: Confirm that the firm is registered with the relevant authorities and has a physical address.
• Contact information: Verify the availability of full contact details, including phone number, office address, and email.

Questions to Ask During a Consultation

Before signing a contract with a contractor, it’s important to ask a few key questions:

• How is the cost of services determined? (hourly rate, fixed fee, percentage of revenue, etc.)
• What additional expenses might arise?
• How will communication be handled? (phone, email, online platform)
• How quickly can you expect responses to inquiries and questions?

Key Points to Consider When Registering a Company in the USA

We have identified several key aspects to consider before registering a company in the USA:

• Founder’s residency
• Existing business operations in other countries
• Tax obligations in the USA and other countries
• Transfer pricing
• Intellectual property location
• Company share distribution

Conclusion

Registering a company in the USA may seem simple at first glance, but there are many nuances that unscrupulous “agents” may not disclose. Our international experience in accounting allows us to see a more complete picture of your business project in the USA. Involvement of practicing partners in forming tax and business strategies helps our clients feel supported from all sides. We are ready to support you from the very beginning to ensure your business journey is successful.