It sounds obvious, I admit. But it’s an important rule to remember. Trusting the other company comes from doing enough background research — you could call it “background due diligence,” I suppose. Back in law school, I remember this rule often being repeated by professors. These days it pops into my head more often, and it’s a rule that businesses must abide by. In more dire economic times (now), businesses need to be especially cautious and engage in more diligent background research, especially if conducting business with a company for the first time. I’ve been thinking about it a lot recently because we’ve been hearing from companies that are flat out not getting paid, or not getting the services/products they contracted for. The economic downturn is, of course, not helping, but if they had done their homework when entering into their contracts, they most likely would have seen the red flags and avoided such an outcome.
So, aside from digging through Google searches, what are some ways of establishing trust by looking into a company’s background? There’s a lot of public information on-line. I’ll put together a short list, and, as always, we welcome your thoughts and contributions.
- Contact others who have previously done business with the company. Have they always been paid? On time? Any other problems?
- Check the company’s public corporate records. The secretary of state’s office for each state has these. (Search for corporate records for Oregon companies here.) If a company hasn’t bothered to take care of its regular corporate filings, for example, that might be an indication that something is wrong. Other red flags are if the company hasn’t been around very long, or if the owners have opened up lots of similar companies. The latter might indicate that none of the companies has much money.
- Look into the company’s owners. The secretary of state’s corporate records should tell you who the company’s owners are. Many counties will offer free on-line access to property records, tax liens, and other recordings. Here’s a link to that information in Multnomah County; unfortunately, their system is not user-friendly at all. Other counties allow you to see .pdf versions of all of these records.
- Check to see if the company owes debts. Sometimes these will show up in UCC filings. In Oregon, you can check those records here.
Or you can also avoid the need to investigate if you just get paid up front (possible) or get the products/services up front (less likely). But, don’t expect that you can just sue and get your money back if problems occur. Litigation is a long process, and doesn’t always produce a fair result. And even if you prevail at litigation, that doesn’t mean you’ll get your money. The other company could file for bankruptcy, go out of business, or simply hide its assets.
Tags: due diligence, rules of business
