Legal Professionals & the Corporate Transparency Act
What do I need to know about the BOI reporting requirement's impact on law firms?
The Corporate Transparency Act will also have a significant impact on law firms. There are four scenarios for lawyers to consider – and they could all be true at the same time for a particular law firm.
Scenario 1: A law firm could be a reporting company and have to file Beneficial Ownership Information on its own behalf.
In and of themselves, law firms are not exempt from the BOI reporting requirement. And just like any other reporting company, a law firm that qualifies as such has to file an initial beneficial ownership information report on or after January 1, 2024, and before January 1, 2025. But there is, of course, that exemption for large operating companies – those that employ more than 20 full-time employees in the U.S., have an operating presence at a physical office within the U.S., and filed a federal tax return in the U.S. for the previous year demonstrating more than $5 million in gross receipts or sales.
Scenario 2: Lawyers, paralegals, or other law firm employees might be considered company applicants.
This is something law firms need to consider if they’re involved in creating domestic entities or registering foreign entities beginning January 1, 2024. But the challenge is that it might not always be immediately clear who the company applicant is. As a reminder, a “company applicant” is the individual who directly files the document that creates a reporting company or first registers a reporting company to do business in the U.S.
Here are a couple of situations to consider (courtesy of legal syndication platform Mondaq):
- Let’s say a reporting company hires a law firm and directs one of its attorneys to file entity formation documents. In that case, both the individual at the reporting company who is overseeing the filing and the attorney filing the formation documents with a secretary of state would be company applicants. Consequently, both would need to be reported.
- To add even more layers, consider this situation: a person at a reporting company asks outside counsel to form a company; the outside counsel then assigns a junior attorney at the same law firm to take care of the filing; the junior attorney then uses an outside business formation service provider to make the filing with a secretary of state. In this case, who would be the company applicant? For one, based on the BOI reporting rule, it would most likely be the person working at the business formation service provider who files with the secretary of state. But beyond that, it’ll depend on the details of the filing and any additional guidance to be provided by FinCEN to determine who else would count as a company applicant. In the end, it comes down to 1) the nature of the business formation service and, 2) whether there are any other company applicants.
Law firms might want to consider revising internal policies around new client intake processes and business entity formations. For example, a law firm might want to start collecting BOI information at the intake stage, and it might want to require certain attorneys and paralegals to obtain a FinCEN ID.
Scenario 3: Law firms might need to inform their reporting company clients of the Corporate Transparency Act’s BOI reporting requirement and advise them on how they can comply.
Now is the time when lawyers should provide clients with information about who has to file, when and how to file, and what has to be reported. There are two approaches to this: 1) law firms reaching out proactively to clients; and 2) law firms advising clients when they reach out to them. To determine whether attorneys have an obligation to reach out to clients, they should consult their local ethics rules.
- If a law firm assisted clients in forming or registering business entities in the past – i.e., the entity exists by January 1, 2024 – the firm needs to determine if it’s obligated to notify those clients about the Corporate Transparency Act (CTA) and the beneficial ownership information (BOI) reporting requirement.
- Starting January 1, 2024, law firms assisting clients with forming new business entities or registering foreign business entities should consider advising those clients of the BOI reporting requirement. (As a reminder, newly formed or registered reporting companies must file their initial report within 30 calendar days of receiving notice of their creation or registration.)
Scenario 4: Law firms need to determine whether to file BOI reports on behalf of the client or whether they will advise the client to file directly.
Lawyers need to familiarize themselves with the ins and outs of the CTA in case business entity clients approach law firms for legal advice in order to comply with the BOI requirement. For example, clients might ask if they need to file at all, how to determine their beneficial owners, when and where to file the report, and what to do when the information changes. Clients might also ask lawyers to help with filling out the forms for submission.
Bottom line: it’s important for lawyers to familiarize themselves with the Corporate Transparency Act and FinCEN’s BOI reporting rule, so they can comply themselves and help clients comply with the filings.