Following our OBLIC Alert on the Corporate Transparency Act (CTA), inquiring minds contacted OBLIC with questions. This Alert will address the questions we received to date. FinCEN information and resources were used for this Alert.

Please keep in mind that the CTA reporting requirement became effective on January 1, 2024. Information on the FinCEN website Beneficial Ownership Information Reporting Frequently Asked Questions was updated January 4, 2024. FinCEN will continue to provide updates on reporting requirements on its BOI webpage.  You may also visit the FinCEN website to subscribe to FinCEN News Updates.

Is an Ohio LLC formed by a resident of Ohio for the purpose of operating a law firm a “reporting company”?

Companies required to report under CTA may be domestic or foreign companies. An Ohio LLC would be a domestic reporting company. Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States. See FinCEN Small Entity Compliance Guide Chapter 1.1 flowchart, Is my company a “reporting company”?

Are law firms exempt from reporting? 

There are 23 types of entities exempt from reporting beneficial ownership. Law firms are not one of the 23 entities listed as exempt. Most of the exempted entities are large companies or already regulated by federal regulations. No business should assume it is exempt, as most will likely be required to report. Note however, one of the four criteria to qualify an entity under the tax-exempt exception includes a trust. See FinCEN Small Entity Compliance Guide Chapter 1.2 Entity Exemption Chart and Checkbox for evaluating criteria for each exemption.

If my law firm has to report, how is a beneficial owner identified? 

A beneficial owner is ANY INDIVIDUAL who directly or indirectly either exercises substantial control over a reporting company OR owns or controls at least 25 percent of the ownership interests of a reporting company. A reporting company can have multiple beneficial owners and there is no maximum number of beneficial owners who must be reported. See FinCEN Small Entity Compliance Guide, Chapter 2, Chart 3 Substantial Control Indicators and Checkbox for Identifying substantial control.

What information is needed for reporting? 

The reporting company will need its full legal name, any trade name or “doing business as,” complete current U.S. address, and state, tribal, or foreign jurisdiction of formation information.

Beneficial owner information must include full legal name, date of birth, complete current address. This is the individual’s residential street address. It must also include the unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents: U.S. passport, State driver’s license, identification document issued by a state, local government, or tribe. If an individual does not have any of these documents, a foreign passport may be used.

If an individual has obtained a FinCEN identifier and provided it to a reporting company, the reporting company may include such FinCEN identifier in its report instead of the information required about the individual. See FinCEN Small Entity Compliance Guide, Chart 7 Required Information Checklists.

Is a FinCEN identifier required?

An individual or reporting company is not required to obtain a FinCEN identifier. However, doing so can simplify the reporting process. A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN. The reporting company may request a FinCEN identifier when it submits a BOI report by checking a box on the reporting form. An individual can apply at FinCEN ID Application for Individuals.

Will an attorney be a “direct filer”? 

A direct filer is one category of company applicant. This is the individual who directly filed the document that created a domestic reporting company, or the individual who directly filed the document that first registered a foreign reporting company, by actually physically or electronically filing the document with the secretary of state or similar office. The other category of company applicant is the individual who “directs or controls the filing action.” See FinCEN Small Entity Compliance Guide, Chapter 3, Chart 5 Company applicant reporting requirement for further clarification.

When does the report need to be filed? 

Companies that already exist as of January 1, 2024, must file initial BOI report by January 1, 2025. If your law firm LLC or other reporting entity was already in existence before January 1, 2024, you have until January 1, 2025, to file your initial report.

Companies created or registered to do business in the United States on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving actual or public notice that the company’s creation or registration is effective to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Companies created or registered on or after January 1, 2025, it will have 30 calendar days from actual or public notice that its creation or registration is effective to file its initial BOI report. E.g. the company may receive actual notice its creation or registration is effective through direct communication from the secretary of state or similar office. The company could also receive public notice that its creation or registration is effective because it appears on a publicly accessible registry maintained by the secretary of state or similar office. As notice practices will vary by jurisdiction, if a jurisdiction provides both actual and public notice, the timeline for determining when an initial BOI report is due starts on the earlier of the two dates notice is received.

FinCEN began accepting reports on January 1, 2024. See FinCEN Small Entity Compliance Guide, Chapter 5, Initial Reports Chart.

How is the report filed? 

The report is filed electronically on the FinCEN website. Click on File the Beneficial Ownership Information Report (BOIR). You can select File PDF BOIR, which lets you prepare the report offline and submit when completed, or File Online BOIR. Either way, you can download the BOIR transcript upon submission.

If the report is inaccurate, the reporting company must correct it no later than 30 days after the date the company became aware of the inaccuracy or had reason to know of it. See FinCEN Small Entity Compliance Guide, Chapter 6.2 on Corrected Reports.

Does my OBLIC policy cover CTA work? 

The OBLIC policy provides coverage for an act, error, or omission of the Insured or any person for whose acts, errors or omissions the Insured is legally liable, in rendering or failing to render “Professional Services” for others in the Insured’s capacity as a lawyer.

The policy does not apply to any claim arising out of any matters for which the Insured serves or acts in any fiduciary capacity regarding any business enterprise, non-profit or charitable organization if not appointed to such position by a court of competent jurisdiction; or any employee or group pension, union, welfare, profit-sharing or mutual fund or trust, or any employee or group investment fund or trust; or any fund, trust, or other investment in which any Insured or individuals with relationship defined in the policy have a beneficial interest.

There are penalties for potential violations of CTA that include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information. The OBLIC policy at Exclusion (a) and (b) would apply to allegations of this conduct.

Civil penalties of up to $500 for each day that the violation continues may apply to a person who willfully violates the BOI reporting requirements. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. For additional discussion, see Beneficial Ownership Information Reporting FAQs at K. Compliance/Enforcement.

Does OBLIC have suggested language on CTA? 

If you are certain you have terminated the relationship with a former client, there is no affirmative duty to notify FORMER clients of the change in the law.

If you decide to inform former clients of CTA, do not inadvertently create an attorney/client relationship with the communication. Consider using limiting language such as:

“The Corporate Transparency Act (CTA), effective January 1, 2024, has created additional requirements for domestic and foreign companies. In consideration of our past representation of [ENTITY NAME], we wanted to make you aware of this new law. While we would be happy to discuss or assist with these new federal requirements imposed on nearly all companies, we are not taking undertaking any representation or action unless specifically engaged to do so. Please contact us if you would like any assistance.”

Click here for a printable CTA Practice Check List

As always, if there are questions or comments, please do not hesitate to contact us at OBLIC. CTA is an evolving process. We’ll continue to monitor and update as it develops.

This information is made available solely for loss prevention purposes, which may include claim prevention techniques designed to minimize the likelihood of incurring a claim for legal malpractice. This information does not establish, report, or create the standard of care for attorneys. The material is not a complete analysis of the topic and should not be construed as providing legal advice. Please conduct your own appropriate legal research in this area. If you have questions about this email’s content and are an OBLIC policyholder, please contact us using the information above.