What is KYC for Companies(KYB)?
Financial institutions and other organizations use KYC for Companies or KYB or corporate due diligence processes to confirm and evaluate the business-related information of their clients or potential business partners. It serves as an alternative to “Know Your Customer” (KYC), which is concerned with confirming the identity and personal data of specific customers.
The goal in performing KYC for companies is to make sure that businesses dealing with other businesses are fully aware of their ownership structure, legal status, financial situation, and any potential risks. By ensuring transparency and regulatory compliance, this process helps to reduce fraud, money laundering, terrorist financing, and other illegal activities.
Why is conducting KYC for Companies so important?
An effective KYB(KYC for Companies) program is essential for risk management, compliance with regulations, fraud prevention, financial stability assessment, and ensuring a trustworthy business environment.
Organizations can make informed decisions, protect themselves from financial and reputational risks, and create a safer and more transparent workplace through this approach.
A company or issuer will lower the financial risks associated with their business dealings with particular customers if they adhere to KYC policies. Important components of KYC requirements include
- obtaining a customer’s complete financial portfolio and background information,
- determining the source of their income
- assessing their ability to invest in your market.
These checks can also be essential risk management techniques to avoid developing commercial ties with potential clients who have engaged in illegal activity.
- Regulatory Compliance and Risk Management: As part of their anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, many governments have put in place requirements to execute kyc for companies. These rules must be followed by financial institutions and other organizations in order to stop illicit financial activity. Failure to implement KYB verification can lead to hefty fines, reputational damage, and regulatory penalties, impacting business operations and long-term stability.
- Fraud Prevention & Identity Verification: KYB assists in the prevention of fraud and identity theft by confirming the legitimacy of businesses and their owners. It makes sure that businesses aren’t impersonated or misused for fraudulent activities. By validating business information, organizations can mitigate risks associated with financial fraud, shell companies, and illegal business operations, protecting their assets, reputation, and stakeholders.
- Financial Stability & Credit Assessment: Implementing KYC for companies offers information about a company’s financial health and credit standing. Organizations can evaluate the financial standing of their business partners by looking over financial statements, credit reports, and other pertinent documents. This information helps in determining credit terms, evaluating payment reliability, and managing financial risks, ensuring more secure and profitable business relationships.
- Building Trust & Strengthening Reputation: Adopting effective KYB procedures improves an organization’s standing and fosters trust among stakeholders, clients, and regulatory bodies. It proves a dedication to moral business conduct, openness, and compliance. Ensuring partnerships with legitimate and credible entities safeguards brand integrity and strengthens investor confidence, making KYB a critical component of investor onboarding, servicing, and long-term relationship management.
List of Documents required to perform KYC for Companies
Typically, the business owner and their corporate entity must provide proof of identity and address. Here is a list of various business entities along with the necessary corporate KYC paperwork for each one.
Sole Proprietorship
A sole proprietorship firm is any company that is owned and run by one person. The individual and business entities are regarded as one in this instance. The following corporate KYC documents are acceptable according to the requirements of the specific bank:
- GST registration document
- a certificate of excise registration.
- Certificate of Value Added Tax (VAT) Registration
- Certificate of Registration for Sales Tax
- Certificate of Professional Tax Registration
- Certificate of Commercial Tax Registration
- Certificate for an Importer-Exporter Code Number
- complete a tax return for income
- certificate of registration for entrepreneurs or small-scale industries Document EM (Part II)
- The Shops and Establishments Act (Gumasta Licence) or Municipal Trade/Tax Bill certificate or registration issued by the municipal authority
- Water, electricity, and telephone bills that are no more than two months old.
Partnership Firm
A partnership firm is a company that is registered as a partnership between two or more people, with a maximum of 20 people. The partnership agreement details the partners’ roles and how profits and losses will be split. Companies must submit the following corporate KYC documents to have their credentials checked:
- For registered partnership firms, a registration certificate
- The partnership firm’s PAN card
- Deed of Partnership
- Proof of the company’s and its partners’ legal names, addresses, and phone numbers
- Copies of identity and address proof and PANs of the partners and officials mentioned in the Power of Attorney (PoA) that allows any of the partners or employees to conduct business on the company’s behalf
Limited Liability Partnership (LLP)
LLPs combine aspects of partnerships and corporations, and their partners have limited liability.
- LLP agreement, Certificate of Incorporation document (mentioning LLPIN), and DPIN of the designated partners are examples of corporate KYC documents for LLP-type companies.
- A list of authorized persons with specimen signatures to operate the account, duly attested by designated partners, and PAN of the LLP Identity and Address Proof, along with PAN of the designated partners and other individuals holding the PoA Resolution, are required for account opening.
Private or Public Limited Company
A private limited company has numerous directors who are also shareholders. Such a business must be founded by a minimum of two people.
On the other hand, a public limited company, where ownership is shared with the public through stock options, must have at least seven directors. To conduct KYC for companies, either public or private limited companies must provide the following documents:
- Corporate certificate (with CIN)
- Articles of Association and Memorandum
- PAN of the Business
- Board of Directors decision regarding account opening
- a list of officials listed by name who have permission to manage the account
- Managers, officers, or employees holding a Power of Attorney for the Company to transact Business must provide proof of identity, proof of address, and a PAN card.
- Photographs and signature cards that have been properly verified by the company should be used to identify authorized signatories.
- A list of the directors, their DINs, and a copy of Form 32 (if the directors don’t match the AOA)
- a genuine certified copy of the public limited company’s business commencement certificate
- Proof of the business’s name, primary location, mailing address, and phone and fax numbers (latest two-month telephone bill).
Frequently Asked Questions
What is the kyc process for companies?
The Know Your Customer (KYC) process for companies is a due diligence procedure used by financial institutions and organizations to verify a company’s identity, legal status, ownership structure, key individuals, and business activities. It also involves checks against regulatory databases and sanctions lists for compliance with laws, and ongoing monitoring for any suspicious activities. This process helps in mitigating risks related to financial crimes and fraud.
How to fill company KYC form?
Follow these steps to complete the KYC process for companies efficiently:
Step1: Visit the MCA (Ministry of Corporate Affairs) website and log in to your account.
Step 2: Navigate to the “Forms” tab and select “DIR-3 KYC” for director and company verification.
Step 3: Enter the required details, including:
- Company name and registration number
- Registered office address
- Director and promoter details (names, PAN numbers, and other identification details)
- Authorized and paid-up share capita
Step 4: Attach mandatory documents, such as:
- Certificate of Incorporation
- Latest balance sheet and profit & loss statement
- PAN cards of directors and promoters
- Proof of address for the company, directors, and promoters
Step 5: Click the “Submit” button to complete the application.
Once submitted, the MCA will process the KYC form and issue a KYC certificate, confirming compliance with regulatory guidelines. Ensuring accurate and up-to-date information helps businesses avoid penalties and legal complications.
What companies need KYC?
Here are some companies that need KYC:
- Financial institutions, such as banks, insurance companies, and investment firms
- Businesses that deal in high-value goods or services, such as precious metals, art, and real estate
- Businesses that operate in high-risk industries, such as gambling and gaming
- Businesses that offer online services, such as e-commerce and social media platforms
KYC is required to prevent financial crime, such as money laundering and terrorist financing. By knowing their customers, businesses can better assess the risk of fraud and take steps to mitigate it.
