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Do I Report My Lawyer as a Company Applicant?
The evolving landscape of business regulation has recently brought heightened scrutiny to company formation processes with the requirement to report certain individuals to the government – “company applicants” – who are instrumental in the creation of business entities.
Lawyers, more often than not, play this pivotal role, and understanding when and why they need to be reported is essential for ensuring compliance with the Corporate Transparency Act (CTA).
Who is a Company Applicant?
Reporting company applicants to the Financial Crimes Enforcement Network (FinCEN) is mandated under the CTA for any new entities formed in 2024 and on. These individuals will be reported on the Beneficial Ownership Information Reports (BOIRs) of any entities that they assist in the formation of.
This reporting rule is part of broader efforts to increase transparency within the corporate sector, helping to prevent the misuse of companies for illicit activities such as money laundering, tax evasion, and financing of terrorism.
A company applicant is someone who files the necessary legal documents to form a business entity, such as the articles of incorporation or organization. It also includes those that are in charge of directing the filing with the state. Take this example:
An attorney directs a paralegal at their firm to file executed formation documents with the state. The paralegal is a company applicant because they directly submitted the documents. The attorney is also a company applicant because they directed the submission of said documents.
These individuals could be anyone – attorney’s, accountant, business owners themselves, or a corporate service provider. The rule ensures that the identities of these key individuals are documented and made available to regulatory authorities, thereby enhancing the overall accountability of business practices.
Why Might FinCEN Request That Company Applicants be Submitted?
Essentially, requiring the disclosure of individuals involved in the formation of a business serves as a vital tool in the fight against financial crime. Here’s why:
- Enhancing Transparency: BOI Reporting ensures that the individuals who create business entities are known to authorities. They may be able to connect company applicants to multiple entities that are involved in illicit activities.
- Vetting of Bad Actors by Lawyers: By submitting themselves to the federal government in connection with entities that they may never have future involvement, may cause lawyers to be more careful about which clients they engage with for entity formation. Ultimately, making it harder for bad actors to form entities.
- Point of Contact: It is not definite that company applicants will face any legal ramifications for forming entities that are later engaged in illicit activities. By reporting a non-owner, authorities will have an extra point of contact to help in locating business owners if needed.
Common Examples of Reportable Company Applicants
- A lawyer who drafts and files the articles of incorporation for a new LLC.
- An accountant who directs a business owner where to file their documents online.
- A corporate service provider that completes and files all formation documents for a new startup.
- Users of online automated formation services (LegalZoom, Rocket Lawyer, etc.)
- A business owner that drafts and files articles of organization in their jurisdiction.
What Entities Don’t Need to Report a Company Applicant?
While reporting company applicants applies to newly formed entities in 2024 and on, entities formed before January 1, 2024 do not need to report any company applicants on their BOI Reports due by January 1, 2025.