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Business Identity Theft: As Destructive as Personal Identity Theft

Once a corporation or limited liability company or other corporate entity has been formed, a new legal entity comes into existence. This new entity has an identity that is separate and apart from the identity of the owners. That business identity can be stolen. Indeed, business identity theft has become a major concern for small businesses here in San Diego and throughout California. See news report here.

Here is some basic information and a few tips on avoiding identity theft. Among the important steps is hiring an experienced San Diego corporate attorney to help.

Business Identity and Types of Identity Theft

Business identity is important and valuable. Commercially, business identity goes by the more-familiar names of “consumer goodwill” and “industry reputation.” Another less public aspect of business identity is the business credit rating. See our discussion here. As a corporation or business grows, like a person starting out with utility bills, credit cards, and a car loan, the business will begin developing a business credit rating. As with individuals, there are companies that track payment histories, amount of credit outstanding/credit paid, and similar data to establish and provide a business credit rating. A good rating will help a business obtain credit and loans at good interest rates. A lower credit rating will do the opposite — making obtaining credit/financing more difficult and will increase the interest rates charged.

Thus, avoiding misuse of your business identity is extremely important. Aside from damage to goodwill and business reputation, there is a potential for significant financial injury if your business credit rating is damaged. Your company will spend extensive resources — time and money — repairing the business credit rating. This is just as damaging — if not more — than “bad” news in the press/media and/or “bad” social media reviews.

Like with personal identity theft, the criminal’s goal is to get access to and exfiltrate the contents of financial accounts, safes, safe-deposit boxes and/or obtain cash, credit, and loans in the name of the victim and then abscond with the money or valuables. Some of the main vectors of criminal activity are these:

  • Posing as owners, officers, and/or employees of a business to sign contracts, financial documents, sales contracts, and more to obtain cash and/or other valuable
  • Forging the signatures of actual owners, officers, and/or employees for similar criminal purposes
  • Making false filings with government agencies as a means of redirecting official correspondence to obtain business ID numbers and accounts or as a means of changing the names of directors and officers to eventually obtain money, goods, and services in the name of the business
  • Using hacking and other cyberattacks to obtain pass-codes and account information to access business bank accounts and credit cards
  • Using a stolen business tax ID number to unlawfully obtain services and goods in the name of the business on credit
  • And more

Being aware of the problem is generally the first and most important step in protecting against identity theft. Second, particular and careful attention should paid to holding or otherwise dormant corporations and LLCs that have been created, but are engaged in substantial business activity. Identity thieves focus more on those types of businesses since owners are generally less wary and less likely to discover the fraud until too late.

Third, update your business filings as soon as any of your business contact information changes. This will avoid what is called “insider theft identity.” This sometimes happens when a disgruntled managerial employee leaves the business. Fourth, on a periodic basis, go online and check your company’s filings with the California Secretary of State. At least once a year is recommended. If there have been unauthorized changes, you know that identity thieves are at work. Fifth, monitor your business credit rating through companies like Dun & Bradstreet, Equifax, and others.

Finally, protect your business identification numbers and accounts like you would protect your trade secrets.

  • Make sure that paper copies are in locked filing cabinets
  • Computer-housed information should be password protected and encrypted
  • Only certain employees should have access to the information
  • Establish security policies and procedures
  • Be careful of how you transmit sensitive information over the internet
  • Shred business records that might contain sensitive information

Contact San Diego Corporate Law Today

For more information, contact attorney Michael Leonard of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses including contract drafting and review, corporate entity formation and annual maintenance, services related to mergers and acquisitions, and private placement memorandums. Mr. Leonard has been named a “Rising Star” four years running by and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard can be reached at (858) 483-9200 or via email.

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