Under the Corporate Transparency Act (“CTA”), effective Jan. 1, 2024, forming an entity that involves an organizational filing with a State or an Indian Tribe requires an “Applicant.” The Applicant must be a “natural person,” and must provide FinCEN with the following information:

1. Full legal name;
2. Date of birth;
3. Current residential or business STREET address (a P.O. box or similar address is not acceptable); and
4. Unique identification confirmation from a governmentally-issued document (passport, driver’s license, or other government ID document) OR an identification number issued to them by FinCEN.

Many of the affected companies and/or their advisers (lawyers, accountants, etc.) will choose to use a service company to handle the responsibilities of providing the Applicant to form the entity. Many of the best-known filing agents are marketing their services to provide Applicant software and support. Since the Company Applicant must be a natural person, the filing agent will designate a member of their team to serve as the Company Applicant.

When using a service company in that role, the reporting company should enter into a written engagement with the filing agent serving as Company Applicant to address certain issues, such as the following:

1. Identification of the natural person at the service company who will be the Applicant;
2. Provisions ensure there are protocols in place at the service company to cover succession in case of the death, employment termination, or retirement of the actual Applicant, or any sale or other acquisition of the service company;
3. Maintaining copies of all filings made with FinCEN, providing copies to the reporting company, and retaining filed copies for some defined period; and
4. Making any amended filings with FinCEN concerning the succession within the prescribed time limit, with a copy provided to the reporting company; or in the case of sale or other acquisition, to require that the acquiring party make any such amended filing with FinCEN as called for to comply with the CTA.

The service company may request that the reporting company certify the accuracy and completeness of information concerning beneficial ownership of the reporting company, and that the reporting company must give to the service company for their employee to file with FinCEN as the Applicant. The risk of liability for any late filing, mis-filing, or non-filing in any event remains with the reporting company. Therefore, the reporting company should seek representations and warranties as to the service company’s (and its employee’s) performance; and to secure those with an indemnification of the reporting company for any breach of those representations and warranties. The reporting company may wish to request that the service company maintain reasonable errors and omissions insurance to support the indemnification, or otherwise provide the reporting company with reasonable assurance of the service company’s financial capacity.

Note: the use of a filing agent to designate a Company Applicant will not, on its own, substitute for or fulfill the reporting company’s obligations, so reach out to counsel to get a clear understanding of your responsibilities to collect and remit the data to FinCEN and of your record retention requirements.

On Friday 1 March 2024 the United States District Court for the Northern District of Alabama, Northeastern Division held that the CTA is unconstitutional, a law beyond the authority of Congress, and enjoined enforcement of the statute against the plaintiffs (the National Small Business Association and others). The opinion does not enjoin enforcement against others. It is unknown whether the U.S. Government will appeal the decision.