How to Ensure a Business is in Good Standing and Compliant

A business in good standing is one that has met and continues to maintain all compliance and financial requirements, such as filing paperwork, paying taxes, and adhering to jurisdictional regulations. Ensuring a business is in good standing is a critical part of Know Your Business (KYB) processes, especially in the fintech industry, where compliance and risk management are paramount.

What Does “Good Standing” Mean?

A business in good standing has properly registered with the relevant authorities and maintained compliance through timely filings and payments. For example, larger entities like corporations or LLCs can obtain a Certificate of Good Standing, which verifies they are legally authorized to operate. This certificate is often used in business verification during KYB compliance checks.

If a business is not in good standing, it may face fines, liens, or even dissolution. For fintech platforms, working with non-compliant businesses can lead to regulatory scrutiny and reputational damage, emphasizing the need for thorough compliance monitoring.

Why Compliance Checks Are Essential in Fintech

Financial institutions, payment service providers (PSPs), and lenders routinely check if businesses are in good standing to mitigate risks like defaults, fraud, or reputational harm. Ensuring compliance aligns with regulatory requirements, such as anti-money laundering (AML) and enhanced due diligence (EDD) mandates.

How to Check a Business’s Standing

1. 1. Secretary of State Records: Most businesses are required to register with the Secretary of State in their jurisdiction. Accessing these records is a fundamental step in KYB verification.

1. 1. Bankruptcy Filings: Searching for bankruptcy records via systems like PACER can help identify financial instability.

1. 1. Tax Liens and UCC Filings: Federal and state tax liens or Uniform Commercial Code (UCC) filings may signal financial distress or outstanding obligations.

1. 1. Articles of Incorporation: Verifying these documents ensures the business was legally formed and authorized to operate.

1. 1. Politically Exposed Persons (PEPs): Screening for PEPs and their relatives or close associates (RCAs) helps assess corruption risks and ensures compliance with AML regulations.

1. 1. Adverse Media Screening: Searching for negative news or public complaints can identify hidden risks associated with a business or its owners.

The Role of KYB in Fintech Compliance

A business being in good standing does not guarantee it is low-risk. Comprehensive KYB involves assessing additional factors, including financial health, ownership structures, and reputational risks. Automating this process using robust KYB compliance solutions ensures accurate and efficient onboarding of businesses.

Strengthen Your KYB Compliance

Accurately assessing the compliance and risk profile of businesses is crucial for fintech platforms and financial institutions. Leveraging advanced identity verification tools can streamline KYB and business verification, giving you confidence in the integrity of your partnerships.

By incorporating robust compliance practices, fintechs can reduce risks, maintain regulatory adherence, and build trust with partners and customers.