Are You Ready to Be a Company Applicant?

Are you ready to be a Company Applicant?  Do you know what a Company Applicant is?

If this term is unfamiliar to you, you are not alone. Many lawyers, paralegals, accountants and other professionals, however, will soon become familiar with their new role as "company applicant" for their corporate clients.

The term "Company Applicant" is a new term coined by FinCEN - the Financial Crimes Enforcement Network - in their draft regulations to implement the Corporate Transparency Act. The Corporate Transparency Act requires every corporation, LLC and other legal entity (formed by the filing of a document with a secretary of state or similar office) to file a beneficial ownership report. The "Company Applicant" is the individual who files the document with the secretary of state to form the company.  

The new term is important because FinCEN's proposed regulations will require reporting companies to provide personally-identifiable information for each Beneficial Owner and each Company Applicant. The personally-identifiable information includes, for each person:

(1) name, 

(2) birthdate, 

(3) address, and 

(4) a unique identifying number from an acceptable identification document (and the image of such document).

For Beneficial Owners, the "address" must be the home residence address in the state where the individual maintains his primary residence for U.S. tax purposes.

For Company Applicants, if the individual is in the business of forming companies (like lawyers, paralegals and accountants) the "address" may be a business address.

The proposed regulations require each reporting company to file a beneficial ownership report within 14 days after the report company is created (in the case of domestic U.S. companies formed after the regulations become effective). For clients and lawyers alike, this will be a significant change in proceed. It will require that the parties collect the requisite personal information from each Beneficial Owner and each Company Applicant at the time the new company is formed.  

In addition, clients and lawyers are going to need a document and information management system to safely store the required information. Many law firms and accounting firms lack the safe and secure systems required to store individual social security numbers and image.  

FinCEN's draft regulations are open to comment until February 7, 2022 and will likely become effective sometime in the Spring of 2022. This means there is still some time left for clients and lawyers to prepare their systems and procedures, but we should all get started on those efforts very soon. 

Update: FinCEN issued its Final Rule on beneficial ownership reports under the Corporate Transparency Act on September 29, 2022.  Some of the guidance in this post should be updated to reflect the Final Rule.