Top 5 LLC Scams

Scammers often target newly registered businesses.
These scams often bear similarities to real communications from government agencies.
The best defense is to stay alert and verify that such messages are legitimate.

A lot of new businesses find themselves targeted by LLC scams. The swindlers behind these LLC scams monitor the Illinois Secretary of State’s records looking for newly formed LLCs, PLLCs, and corporations and, when they find them, try to take advantage of what they perceive as a new business owner’s inexperience to run a quick con.

In this article we’ll cover the five most common LLC scams we’ve seen from our clients. We’ll tell you what they are, how to recognize them, and how to tell them apart from their legitimate counterparts.

Scam 1: Certificate of Status

One of the most common LLC scams we see usually comes from a non-governmental service called the Illinois Certificate Service, and it looks like an official letter. It tells you that you need to pay an $87 fee for a “Certificate of Status.” This is a scam, and these are not required. If you ever did need something of that nature, you would likely look for a Certificate of Good Standing. The Secretary of State offers these directly on their website for a small fee of $25 ($5 for nonprofits). You certainly shouldn’t pay a separate agency to get that for you.

The Certificate of Status scam looks and reads like this:

“An Illinois Certificate of Status is issued by the Secretary of State and may be required for loans, to renew business licenses, or for tax or other purposes. A certificate of Status certifies that your Illinois business is in existence, is authorized to transact business in the state and complies with all state requirements. The Certificate of Status shows the official evidence of an entity’s existence and provides a statement of an entity’s status, current legal name, and date of formation. The Certificate of Status bears the official of the Illinois Secretary of State.”

Scam 2: Labor Law Posters

The second most common LLC scam we see centers on legally required employment posters. It says that, to comply with labor laws, you need to pay the scammer a fee to have a set of mandatory employment posters shipped to your business. The Illinois Secretary of State has identified “LLCS” as one entity that sends this scam letter requesting a $94 fee for the posters. It looks like this:

“Your business is required by Federal Law to post a current compliant labor law poster in the workplace. Federal law requires that this poster be placed on the property of the business whether you have 1 employee or 1,000. You must post UP-TO–DATE employment posters in the workplace. The poster must also include information about workers’ compensation benefits.”

While certain labor law posters are required if you have employees, the U.S. Department of Labor, state of Illinois, and city of Chicago offer free posters to employers to meet these requirements. You can find a helpful guide with the different poster requirements and links directly to the government authorized websites here.

Scam 3: Annual Record Solicitation Form

The third scam comes from a non-governmental firm named the Illinois Council for Corporations. They contact businesses attempting to collect a $150 fee for what they call an “Annual Record Solicitation Form.”

Businesses do not need this document and despite calling themselves “Illinois Council”, this is not a legitimate government authorized entity.

Businesses in Illinois do need to file a document called an “Annual Report” every year to maintain their registration, which can make this scam seem like a real thing and can easily confuse a busy business owner. The Annual Report is filed directly with the Illinois Secretary of State, not through any other agency. You could hire a third party, such as an attorney, CPA, or your registered agent to help or take over the process of filing your annual report – just make sure it’s someone you know and trust. If you want G & G Law to help with filing your legitimate annual report, reach out!

Scam 4: False Unemployment Claims

This scam comes in two forms. Both spread like wildfire during the pandemic but continue to thrive even after the world has largely reopened.

In the first form, an employer receives a notice that a current or former employee has filed an unemployment claim against them. Sometimes these are employees who’ve been gone for a really long time. Why would Jerry, who hasn’t worked here for three years, be filing an unemployment claim now? It is important not to ignore a notice from the Illinois Department of Employment Security (IDES). If a current or former employee has filed a claim, you have a limited amount of time to respond if you want to contest the claim. The easiest first step is to contact the individual if you are still on good terms and verify if they filed a claim. This also provides them with notice if their identity was compromised and used to make the claim. If they are a current employee and did not file a claim, it is important to direct them to the Illinois Department of Employment Security’s identity theft website.

If it is a former employee and you are no longer in contact, the best option is likely going to be to contest the claim because you cannot say for sure if they did or did not file it. If you truly think that it is due to identity theft, you should include that in your response to IDES. Remember, you only have 10 days from the date the letter was mailed to respond to that notice! We recommend immediately reaching out to an experienced attorney AND submitting a response to IDES stating that the information on the claim is not accurate and you want to contest it.

In the second form, an employee will receive a notice that their unemployment claim is being processed when they haven’t filed for unemployment. The employee should not ignore a notice like this from IDES as it is a sign of potential identity theft. If they get one of these notices, it will contain a phone number to contact IDES. They should immediately report the claim as fraudulent. This can also be reported online here. They should also visit the Federal Trade Commission’s identity theft website for more steps they can take to protect themselves from additional fraud risks.

This situation becomes less stressful if you know you’ve followed proper termination procedures for your employees. Most of the big, tense questions we get about employment revolve around letting an employee go. Properly drafted employment agreements and/or an employee handbook with clear policies can provide a business owner with confidence and peace of mind in these situations. Learn more about what those entail here.

Scam 5: Fake IRS Letters, Emails, or Texts

Our last scam deals with the IRS, the boogeyman in every business’s closet. Scammers will send letters which look like IRS communications in an effort to steal identity information for a business, its owners, or its employees. This identity information could give them access to the financials, financial accounts, etc. of the business or individuals.

Scammers have gotten very good at copying IRS logos and letter formats. However, all IRS notices have either a “CP Notice Number” or a “Letter Number”. You should see “CP” or “LTR” and a three- or four-digit number in either the top right or bottom left corner of the letter. They will also direct you to either an irs.gov webpage and/or a taxpayer hotline number for the IRS.

If you’re unsure whether the letter is fake or legitimate, you can call the IRS directly. The IRS taxpayer hotline phone number is (800)829-1040.

If a different telephone number is provided on the letter, do not call that number before verifying the letter came from the IRS. An IRS agent from the taxpayer hotline will be able to confirm if a notice was sent and confirm if the telephone number listed in the notice is legitimate. If you do receive a fraudulent letter, you should report this directly to the IRS by going to their fraud reporting site.

The IRS never contacts a taxpayer by email or text initially regarding their tax account. Unless you are working directly with a specific individual revenue agent, such as an auditor, the IRS will initially contact you through the mail. And the IRS will never request taxpayer information through email or text.

LLC Scams: In Conclusion

This list is far from comprehensive. The Federal Trade Commission has an entire webpage dedicated to alerts about scams as do several other agencies including the IRS, the Illinois Secretary of State, and IDES. Other fraudulent letters and requests might find their way to your doorstep, so stay alert! Having to deal with scams like these is one of the major downsides of forming a business without trusted legal counsel. The formation paperwork is often easy to file on your own or using an online service, but those options don’t come with follow-up care and legal advice. When you form your LLC or PLLC with G & G Law, our team remains available to help with these kinds of troubling questions. Send us a message to start your new business today!