Know Your Business

Know Your Business: Master The Art Of Corporate Compliance

The corporate sector builds the foundations of the global economy today. Each firm that is corporatized needs to be regulated against financial crimes as well. Here’s where Know Your Business (KYB) comes in which is a verification standard confirming the legal status of the company. Read more in today’s article about how KYB is important to the corporate growth of firms.

What is Know Your Business (KYB)?

Know Your Business (KYB) is a business verification standard that ensures a company’s compliance with AML regulations. It is a regulatory process performed by a bank or a financial institution. They ensure the safety of the monetary cycle and that they are conducting business with a legal entity.

Having a comprehensive understanding of all aspects of a business leads to better safety and compliance. This includes knowing the relevant industry, target market, competition, financials, operations, and any other relevant factors that can affect the success of your business.

Benefits of Know Your Business (KYB)

A good understanding of the business enables making informed and timely decisions to mitigate potential threats. Particularly, in the prevention of Money Laundering and Fraud, KYB plays a key role. KYB requires ongoing research, analysis, and evaluation of all relevant factors to ensure that your business remains competitive and profitable.

What are the Know Your Business (KYB) Procedures?

Mainly, KYB Procedures include the verification checks by using UBO (Ultimate Beneficial Ownership) as a mechanism of transparency. This allows the financial institution to reveal the direct beneficiary of the business. In this way, the Money Launderers and other criminals can be traced through their financial trails.

Know Your Business (KYB) and Corporate KYC (Know Your Customer)

Normally, people confuse KYB and Corporate KYC. Since both terms indicate the same process and are quite similar but there is a difference. Corporate KYC is the process of verifying the identity and legal standing of a corporate entity or business. Typically, it is done by financial institutions, regulatory bodies, and other organizations that need to conduct due diligence on the companies they work with.

Despite many similarities, the focal point of the two terms is different. Corporate KYC is done to verify the identity of a company and its owners, While KYB is done for business customers and partners.

To support this view, the following are a few sources with the said stance:

  • Refinitiv published a white paper that defines KYB and Corporate KYC as two different processes. It says that KYB is an extension of KYC focused on the risk associated with the customer base of a company.
  • Thomson Reuters states in an article that KYC and KYB are similar but not the same. It defined both the processes same as Refinitiv
  • Comply Advantage states that KYB is a recent development in KYC.

Requirements for Know Your Business (KYB)

Generally, the requirements for conducting KYB are the same as that of Corporate KYC (Know Your Customer). Following here is a list of main documents required by businesses Know Your Business (KYB).

  • Business Registration Documents that include business licenses, tax ID numbers, and incorporation articles.
  • Ownership Structure that includes profiles of the owners and the shareholders.
  • Business history and reputation pertinent to the business’s risk factors, reputation, and entire historic background.
  • Business Activity and Transactions that describe the nature of business activities, customer base, and transactional information.
  • Anti-money Laundering (AML) and Counter-Terrorism Financing (CTF) checks that screen the business for legal compliance.
  • Politically Exposed Person (PEP) checks confirm if the business is connected to any PEPs who are involved in corruption.

Overall, the KYB can have the following list of specific documents based on the company type. This list is entitled KYC Documents for Companies and Business Entities available at Hyperverge.

In the case of a sole proprietorship:

  • GST registration certificate
  • Excise registration certificate
  • Value Added Tax (VAT) registration certificate
  • Turnover tax registration certificate
  • Professional tax registration certificate
  • Commercial tax registration certificate
  • Importer-Exporter Code Number certificate
  • Complete income tax return
  • Certificate of registration for small-scale industries or Entrepreneurs Memorandum EM  (Part II)
  • The municipal authority-issued certificate or registration under the Shops and Establishments Act (Gumastha License) or Municipal Trade/Tax bill
  • Utility bills such as water, electricity, and telephone (not older than two months)

In the case of a Partnership:

  • Registration Certificate for registered partnership firms
  • PAN card of the Partnership firm
  • Partnership Deed
  • Proof of Legal name and telephone number of the firm and its partners
  • Power of Attorney granted any one of the partners or employees to transact business on its behalf
  • Copies of identity and address proof along with PAN of the partners and officials mentioned in  the PoA

Limited Liability Partnership (LLP)

  • Certificate of Incorporation document (mentioning LLPIN) and DPIN of the
    designated partners
  • LLP agreement
  • PAN of LLP
  • Identity and address proof along with PAN of the designated partners and other people holding the PoA
  • Resolution for account opening and a list of authorized persons with specimen signatures to operate the account, duly attested by designated partners.

Private or Public Limited Company

  • Certificate of incorporation (with CIN)
  • Memorandum & Articles of Association
  • PAN of the Company
  • Resolution of the Board of Directors for account opening
  • A list containing names of officials authorized to operate the account
  • Proof of identity and proof of address along with PAN card of managers, officers, or employees holding Power of Attorney of the company to transact business on its behalf
  • Authorized signatories should be identified using pictures and signature cards that the firm has adequately confirmed
  • List of directors, DIN, and copy of Form 32 (if directors differ from AOA)
  • A valid certified copy of the business commencement certificate (Public Limited Company)
  • Proof of the company's name, principal place of business, mailing address, and Telephone/Fax numbers (Telephone bill not older than two months)

Finally Thoughts

As the above-mentioned list shows in-depth information on the KYC requirements of businesses. In summary, we can say that Know Your Business (KYB) has the following requirements

  • Customer Identification
  • Customer Due Diligence (CDD)
  • Ongoing Monitoring
  • Record Keeping
  • Risk Assessment
  • Compliance Management

Lastly, KYB is essential for businesses and their owners to ensure the prevention of Money Laundering and Terrorism Funding. Staying compliant and protected from financial crime is one of the core responsibilities of firms and their owners. So, they must implement robust KYC and AML systems internally as well as comply with external regulations.

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