How to Check a Company's Legitimacy

If you are interested in purchasing or investing in a company, use these suggestions to check its legitimacy.

Instructions

Difficulty: Moderately challenging

Things You’ll Need:

• Telephones
• Newspaper
• Internet Access
• Library Cards
• Computers

1. Call the Better Business Bureau to find out if any complaints have been lodged against the company.
2. Check documents on file with the Securities and Exchange Commission - if the company is publicly held - and read the "legal proceedings" sections. Determine whether the company is embroiled in lawsuits involving alleged fraud or other questionable practices.
3. Check the SEC documents to learn about the backgrounds of the company's officers and directors.
4. Check with the secretary of state's office in your state (if the company isn't publicly traded) to review incorporation documents. These indicate who is behind the company.
5. Search newspaper and magazine archives to see if the company and/or its officers and directors have ever gotten unfavorable press.
6. Drive to the company's operations center to make sure it isn't a facade or a mere mail drop.
7. Call the U.S. Bankruptcy Court for the district in which the company is based to find out if the company has filed for bankruptcy protection from creditors.
8. Check with area courts to determine if liens have been filed against company property.
9. Ask the attorney general's office in your state if complaints about the company have been filed. The office probably will have a consumer-protection division or fraud division that might answer questions.
10. Note how much stock the company's insiders hold. If the company is publicly held, and the officers and directors own little of the company's stock, don't invest.