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Entity Types & Documentation Requirements

Last Updated: 2025-12-28 Status: Complete

This page details the specific documentation requirements for each business entity type during KYB verification.

Overview Matrix​

Entity TypeRequired DocumentsTypical TimelineCommon Issues
Sole ProprietorshipPersonal ID, SSN/EIN, DBA (if applicable), Business License1-3 days (manual)
<10 min (automated)		Missing DBA registration, unlicensed operation
LLCArticles of Organization, EIN Letter, Operating Agreement, Good Standing Certificate3-5 days (manual)
10 min - 2 hrs (automated)		Expired good standing, missing operating agreement
CorporationArticles of Incorporation, Bylaws, EIN Letter, Stock Certificates, Good Standing5-7 days (manual)
2-4 hrs (automated)		Complex ownership structure, offshore entities
PartnershipPartnership Agreement, EIN, Partner KYC for all partners3-5 daysIncomplete partner information
Non-ProfitArticles of Incorporation, 501(c)(3) Letter, Bylaws, EIN5-10 daysInvalid tax-exempt status

Sole Proprietorship​

Definition: Business owned and operated by a single individual, with no legal separation between owner and business.

Required Documentation​

  1. Personal Identification

    • Government-issued photo ID (driver's license, passport)
    • Social Security Number (SSN)

  2. Business Name Registration (if applicable)

    • DBA (Doing Business As) Filing - Required when operating under a name different from the owner's legal name
    • Filed with county clerk or state agency
    • Cost: $5-$50 typical, up to $150 in some states
    • Validity: Usually 5 years, requires renewal

  3. Tax Identification

    • SSN (for sole proprietors without employees)
    • EIN (if hiring employees or electing corporate tax treatment)

  4. Business License

    • Industry-specific licenses (food service, contractors, healthcare, etc.)
    • Local business operation permits
    • Professional certifications

Verification Steps​

  • Verify personal identity via KYC process
  • Check DBA registration with county/state records
  • Validate business license if industry-regulated
  • Confirm business address and operations

Common Issues​

  • Operating under fictitious name without DBA registration
  • Mixing personal and business finances (red flag for fraud)
  • Missing industry-specific licenses
Sole Proprietor Fast Track

Many PayFacs automate sole proprietor onboarding for low-risk industries (e.g., retail, professional services) with approvals in under 10 minutes when all documents are provided.

LLC (Limited Liability Company)​

Definition: Legal business structure providing liability protection for owners (members) while maintaining flexible management and pass-through taxation.

Required Documentation​

  1. Articles of Organization (Certificate of Formation)

    • Official state filing creating the LLC
    • Contains: Business name, registered agent, members/managers
    • Filed with Secretary of State
    • Obtain from: State SOS office or online portal

  2. Operating Agreement

    • Internal document outlining ownership structure, management, profit distribution
    • Not filed with the state (internal document)
    • States requiring Operating Agreement: California, Delaware, Maine, Missouri, New York, Arkansas, DC, Iowa, New Mexico
    • Even if not required, highly recommended for multi-member LLCs

  3. EIN Letter

    • IRS Form CP 575 - Original EIN confirmation letter
    • IRS Form 147C - Verification of existing EIN
    • How to obtain:
      • Phone: 1-800-829-4933 (immediate verbal confirmation)
      • Fax: Same-day confirmation
      • Mail: 4-6 weeks
      • IRS e-Services TIN Matching (free: 25 interactive/100k bulk)

  4. Certificate of Good Standing

    • Confirms LLC is current on state filings and authorized to operate
    • Cost: $10-$50 (FREE in Wyoming, Colorado)
    • Validity: Many PayFacs require <90 days old
    • Requirements: Annual reports filed, fees paid, registered agent maintained

  5. Beneficial Ownership Documentation

Verification Steps​

  • Search Secretary of State business database
  • Verify active/good standing status
  • Validate EIN with IRS TIN Matching
  • Review operating agreement for ownership structure
  • Conduct KYC on all 25%+ beneficial owners

Common Issues​

  • Expired or suspended status (missed annual reports)
  • Missing operating agreement in states that require it
  • Single-member LLC without clear management structure
  • Recent formation (<6 months) with high projected volume
Multi-Layer LLC Structures

LLCs owned by other LLCs require drilling down through ownership layers until reaching natural persons with 25%+ beneficial ownership. This triggers manual review and extends approval timelines to 5-10 days.

Corporation​

Definition: Legal entity separate from its owners (shareholders), providing strongest liability protection with formal governance structure.

Types​

  • C-Corporation: Standard corporation taxed separately from owners
  • S-Corporation: Pass-through taxation election (requires IRS approval)

Required Documentation​

  1. Articles of Incorporation (Certificate of Incorporation)

    • Official state filing creating the corporation
    • Contains: Corporate name, purpose, stock structure, incorporator
    • Filed with Secretary of State

  2. Corporate Bylaws

    • Internal rules governing board meetings, voting, officer duties
    • Not filed with the state
    • Required for proper corporate governance

  3. EIN Letter

    • Same as LLC requirements (CP 575 or 147C)

  4. Stock Certificates / Shareholder Registry

    • Proof of share issuance and ownership
    • Shareholder registry showing all owners and percentages
    • Required for UBO identification

  5. Certificate of Good Standing

    • Same requirements as LLC

  6. Board Resolutions

    • Corporate resolution authorizing payment processing agreement
    • Board minutes approving signatories

Verification Steps​

  • Secretary of State incorporation verification
  • Validate EIN with IRS
  • Review shareholder registry for beneficial owners (25%+)
  • Verify authorized signers via board resolution
  • Check good standing status

Common Issues​

  • Complex ownership structures (holding companies, foreign entities)
  • Missing or outdated shareholder registry
  • Unauthorized signers (not listed in bylaws/resolutions)
  • Publicly traded companies (different KYB requirements)
S-Corp vs C-Corp

From a KYB perspective, both are treated identically. The distinction matters for tax purposes but not entity verification. Both require the same documentation.

Partnership​

Definition: Business owned by two or more individuals or entities sharing profits, losses, and management responsibilities.

Types​

  • General Partnership (GP): All partners share liability and management
  • Limited Partnership (LP): General partners manage; limited partners invest only
  • Limited Liability Partnership (LLP): All partners have limited liability

Required Documentation​

  1. Partnership Agreement

    • Legal contract defining partnership terms, profit-sharing, decision-making
    • May be written or oral (written strongly recommended)
    • Should include: Partner names, capital contributions, profit splits, management duties

  2. EIN

    • Required for all partnerships filing tax returns

  3. Certificate of Partnership (if registered)

    • Some states require formal partnership registration
    • LLPs must register in all states

  4. KYC for All Partners

    • Complete identity verification for each partner
    • Beneficial ownership for partners with 25%+ stake

Verification Steps​

  • Review partnership agreement for structure
  • Conduct KYC on all general partners
  • Verify EIN with IRS
  • Check state registration if applicable

Common Issues​

  • Oral partnerships with no written agreement
  • Unclear profit-sharing arrangements
  • Missing partner information
  • Inactive or deceased partners still listed

Non-Profit Organizations​

Definition: Organizations formed for charitable, educational, religious, or social purposes with tax-exempt status.

Required Documentation​

  1. Articles of Incorporation

    • Must include non-profit purpose statement
    • Filed with Secretary of State

  2. 501(c)(3) Determination Letter

    • IRS approval of tax-exempt status
    • Confirms organization qualifies for charitable donations
    • Critical: Verify letter is current and not revoked

  3. Bylaws

    • Organizational governance rules
    • Board structure and voting procedures

  4. EIN

    • Required for all non-profits

  5. Board Resolution

    • Authorizing payment processing services
    • Listing authorized signers

Verification Steps​

  • Verify 501(c)(3) status via IRS Tax Exempt Organization Search
  • Check Secretary of State registration
  • Review bylaws for board authority
  • Validate EIN

Common Issues​

  • Revoked tax-exempt status (failure to file Form 990)
  • Unauthorized commercial activities
  • Missing board authorization
Tax-Exempt Status Verification

Always verify current 501(c)(3) status via IRS Tax Exempt Organization Search (https://apps.irs.gov/app/eos/). Revoked status means the organization is not eligible for tax-exempt benefits and may face restrictions on payment processing.

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