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Update Alert: New Answers from FinCEN FAQs
FinCEN recently updated their FAQs about the Corporate Transparency Act (CTA), which offers crucial insights for company applicants – individuals involved in the filing of creation or registration documents for reporting companies.
These clarifications are significant in defining who is considered a company applicant and the reporting responsibilities that come along with it.
Let’s dive into the details of these FinCEN FAQs and their implications.
Understanding the Company Applicant in Scenarios
The CTA specifies two types of company applicants:
- The individual who directly files the formation documents with a secretary of state or similar office.
- The individual chiefly responsible for directing or managing the filing of the entity formation documents.
There can be a maximum of 2 company applicants reported on a Beneficial Ownership Information Report (BOIR), and a minimum of 1. If more than 2 individuals fall under the definition of company applicant, the two who played the greatest role in the filing process would be reported. Consider these examples:
Scenario 1: An attorney prepares the company creation documents for a client and then directs a service provider to file the document. In this case, the attorney and the individual at the corporate service provider who directly filed the document are both company applicants.
Scenario 2: Assume the previous scenario, but a paralegal assists the attorney with creating the formation documents. The attorney directing the filing and the individual at the corporate service provider are the company applicants, as they played the greatest roles in the filing process.
Scenario 3: The client requests the completed formation documents from the attorney and directly instructs a service provider to file them. The client and the individual at the corporate service provider would be the company applicants as the client does the directing and the individual service provider actually files the documents.
Also covered in the updated FinCEN FAQs was the use of automated incorporation services (i.e. LegalZoom, Rocket Lawyer, etc.) and who plays the role of company applicant.
If a business formation service offers only software, online tools, or general written guidelines to assist in filing registration documents for a reporting company, without direct involvement of its employees in the document filing process, then these employees are not considered company applicants.
For instance, a person might use an automated incorporation service to independently prepare and file documents for establishing their own reporting company. In such a scenario, the reporting company would only list that individual as a company applicant on its BOIR.
Clarification on third-party couriers as company applicants were also provided in the FAQs. In fact, a third-party courier or delivery service employee merely delivering documents is not a company applicant.
Implications for Company Applicants
This updated guidance under the CTA brings clarity to the process of identifying company applicants. For individuals and entities involved in the filing process, understanding these nuances is crucial. It ensures compliance and aids in the transparent and accurate reporting of company formation.
The scenarios provided in the FinCEN FAQs are particularly helpful, offering concrete examples of how the rules apply in real-world situations.
These clarifications are invaluable for attorneys, corporate service providers, and individuals using automated services for company creation, ensuring they accurately identify and report company applicants as required by the CTA.
In essence, the role of a company applicant is determined not only by action but by the level of responsibility and decision-making in the entity formation process.
Reminder: Only entities established on or after January 1, 2024, are mandated to report their company applicants on its BOIR. Those formed prior to this date are not required to submit any company applicant information to FinCEN.
Additionally, those new reporting companies are not obligated to inform FinCEN of any changes in company applicant information following their initial BOI filing.
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