Rule 1.1 of the Model Code of Professional Responsibility requires a lawyer to "provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation." Competent representation requires that "a lawyer should keep abreast of changes in the law." Comment 1.1(8). Changes in the law resulting from the Corporate Transparency Act will require lawyers to adopt new procedures to maintain their ethical practice.
The Corporate Transparency Act is one of the biggest developments in corporate legal practice in decades. The law requires nearly every corporation, LLC and limited partnership to file a beneficial ownership report with FinCEN, the Financial Crimes Enforcement Network.
When FinCEN implements its regulations (expected during 2022) reporting companies formed after the effective date will need to file their first report within 14 days. Pre-existing companies will have one year to file their first report.
Each beneficial ownership report will need to provide identifying information (such as name, home address, and SSN (or another unique identifying number) for each (a) beneficial owner, and (b) company applicant. Beneficial owners are defined as individuals who exercise substantial control over the reporting company or who own more than 25% of the beneficial interest. Company applicants are the individuals who file the organizational documents for the company (and the individuals who direct those filings).
After a reporting company files its first beneficial ownership report, the reporting company must file an amendment within 30 calendar days after any change in any information covered by a prior report. For example, if a reporting company reported that it was owned by three individuals (providing the home address and identifying information for each), and one of those individuals changed her residential address, that change would trigger an amendment.
The 30 day amendment requirement will pose a challenge for lawyers. Most lawyers know their clients, but don't always know all of their client's shareholders and business partners. Even a lawyer with a close client relationship might not be aware of an individual shareholder's residential address (or the fact that the residential address has changed).
Lawyers will need to develop a series of disclosures and reminders for their clients that apprise them of the Corporate Transparency Act and their need to remain aware of changes in beneficial ownership information.