Who is a Company Applicant?
There has been some consternation among law firms and corporate service providers about “who is a company applicant” under the Corporate Transparency Act. FinCEN revised its BOI FAQs last week to provide further guidance on that question.
Who is a Company Applicant?
The definition of “company applicant” is contained in FinCEN’s Reporting Rule.
Although the term is singular, the definition indicates that there must always be at least one company applicant and that, in many circumstances, the “company applicant” may be as many as two people.
The definition in the Reporting Rule provides that a “company applicant” means:
(1) For a domestic reporting company, the individual who directly files the document that creates the domestic reporting company as described in paragraph (c)(1)(i) of this section;
(2) For a foreign reporting company, the individual who directly files the document that first registers the foreign reporting company as described in paragraph (c)(1)(ii) of this section; and
(3) Whether for a domestic or a foreign reporting company, the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.
Under this formula, if “more than one person is involved in the filing of the document” then there must be two individuals, consisting of (1) the “individual who directly files the document,” and (2) the “individual who is primarily responsible for directing or controlling such filing.”
Law Firms and Corporate Service Providers
Corporate service providers (those private companies that file documents with a secretary of state’s office and sometimes serve as registered agent) and law firms have struggled with how to apply the definition of company applicant.
It is common for a client to call a law firm partner with a request to form a new entity. The partner may hand off the project to an associate, who might do some work before handing off the project to a paralegal. The paralegal might do some work before sending the document to a corporate service provider to be filed, where the actual filing would be performed by an employee of the corporate service provider. On these facts, many asked, how can we tell who “directly files” the document and who is “primarily responsible” for directing the process?
FinCEN’s New FAQ Provides Clarity
FinCEN’s new FAQ E.5. provides a clear answer to the questions many have been asking.
FinCEN wrote in its new FAQ:
“For the purposes of determining who is a company applicant, it is not relevant who signs the creation or registration document, for example, as an incorporator. To determine who is primarily responsible for directing or controlling the filing of the document, consider who is responsible for making the decisions about the filing of the document, such as how the filing is managed, what content the document includes, and when and where the filing occurs.”
In the scenario where some struggled to find an answer, FinCEN’s FAQ E.5. provides a clear outcome:
“If the attorney instructs a paralegal to complete the preparation of the creation document, rather than doing so themself, before directing the corporate service provider to file the document . . . the attorney and the individual at the corporate service provider who files the document are company applicants. The paralegal is not a company applicant because the attorney played a greater role than the paralegal in making substantive decisions about the filing of the document.”
If the client contacted the corporate service provider directly (without involving an attorney or a law firm paralegal), FinCEN clarified, the client and the individual at the corporate service provider would both be the company applicant.
Likewise, if the law firm attorney took the order from the client and then routed the order to the corporate service provider, both the attorney and the individual at the corporate service provider would be the company applicant.
What Law Firms Need to Do
Law firms should adopt policies to standardize how they handle the formation of new entities. The attorneys and paralegals involved need to understand the definition of “company applicant” and how they might become one. Law firms will want to adopt a system for tracking their formation of new entities and the attorneys and paralegals in their firms who act as the company applicant for each one.
Such a law firm procedure might involve attorneys and paralegals obtaining a FinCEN ID that can be communicated to the client who will need that data for the reporting company’s BOI report.
What Corporate Service Providers Need to Do
Similarly, corporate service providers need to educate their personnel on the definition of “company applicant”. Corporate service providers will also need to adopt a policy for how they will identify their personnel, where appropriate, as a company applicant to a client.
The FinCEN Report System Tracks Company Applicants
Both law firms and corporate service providers can benefit from the FinCEN Report system. The system allows each reporting company to connect with its company applicants (where required). Each company applicant’s information will be included in the BOI that the reporting company files through the FinCEN Report system.
Conclusion
The CTA has created a new vocabulary for business owners, lawyers, paralegals and corporate service providers. It is vital that those involved in the process of forming entities understand the definition of “company applicant” and how it can affect their obligations now that the CTA has taken effect.
