Initially, complying with the guidelines of KYC deem to be enough for verification purposes. But as time passed and advancements kept on growing with reference to identity verification. It realizes among the business communities across the globe that merel\y relying on customer compliance is not enough. Businesses felt the need to verify other businesses that they dealt with. This process was later formally termed ‘Know Your Business’ or KYB. One common misconception perceives from this term is that it is obvious that a business would know itself but here in this scenario, it is not what it literally looks like. It means that a business entity should analyze and verify another business that it is going to take on board as a client in the future. A business should be aware of what its client business entity is doing to conduct safe operations.
Essential Documents for Know Your Business
Every business verification process performs in documented format to hold proof whenever needed for future purposes. There are some important documents require for complying with the legal regulations of KYB. These documents include the business registration documents. Registration documents include the certificate of incorporation or certificate of commencement. It depends upon the private or public limited status of a business.
If a business entity privately registers, it will require to show the certificate of incorporation that issue by the government as proof that an entity is doing business after informing the legal authorities. In the other scenario, if a business registers publicly with the status of limit liability, then it is bound to submit the certificate of commencement to ensure that it legally recognize.
Having a limited liability means that the company is bound to pay only that amount of debts that can be paid with the assets of the company and no per belongings will use to pay company expenses. Thus, businesses should ensure each other’s status of legal eligibility requirements to fulfill conducting business activities. Another document that require for verifying companies is the Ultimate Beneficial Ownership (UBO). UBO is a legal entity term to be the beneficiary of the company. A beneficiary is an entity that receives an advantage in terms of money from a business.
In addition to the above-mentioned documents, the business also needs to authenticate the identities of shareholders that hold the possession of more than 25% shares of another business. Also, the procedure of verifying businesses involves the validation of managers and owner(s) and verification of the licenses that are mandatory to held by the other company.
Benefits of KYB Checks
Know Your Business is an integral part of the verification process because it saves a company from incurring a drastic amount of losses. As stated in a research study, around $4 million is lost by a company if it is not compliant with the regulations of KYB. Also, an interesting fact is that around a sum of $5-6 million is spent on KYB compliance costs as reported by Shufti Pro. KYB has several benefits that encourage a business to integrate these regulations into its operations for enjoying a secure identity
Establishing Harmonious Business Relationships
Encourages Mutual Trust
Synchronizing the business operations with respect to the guidelines of KYB is a determinant of trust between two or more business operations. KYB transmits a sense of mutual trust among the business entities. Because they find it convenient enough to show reliance upon each other. Also, the suppliers or vendors of two businesses can not trust blindly so KYB gives vision to that trust.
Promotes AML Compliance
The implementation of KYB regulations provides a transparent means to analyze the financial activities of a business. Transparency of financial transactions ascertains the fact that the other company is duly compliant with the rules of anti-money laundering. In addition to that. As reported by Shufti Pro News, many companies hide their tax payables’ information. Which puts the burden upon the general public. The digital business verification services allow the business entities to determine the true intentions of other companies. KYB helps to unveil the criminal activities which save the reputation of a business from compromise.
Verifying businesses before engaging with them to perform operational activities is a mandatory responsibility of every business. If it wants to secure itself. KYB checks are helpful to determine the authentic status of a company and not take the risk to rely on what it claims to be. It is undeniable that only transparent activities reflecting the authenticity of a company can foster profitable business relations. Where trust prevails on legal grounds rather than just by verbal commitments. KYB compliance encourages long-term sustainable relationships between two or more business entities.