Beneficial Ownership Filings will bring more clients to law firms and accounting firms.
The Corporate Transparency Act presents a unique opportunity for well-prepared law and accounting firms to win droves of new clients. With an estimated 32,556,929 companies expected to file initial beneficial ownership information reports in 2024, the law’s vast coverage results in a FinCEN-projected cost of $21.7 billion for compliance filings. Many clients will need assistance with these filings due to the complexity of the regulation. They will rely on lawn firms ready to provide Beneficial Ownership Information (BOI) report filing services.
Law firms need to prepare and evaluate the business impact of using beneficial ownership reporting software.
Firms should plan ahead and consider beneficial ownership report software to offer effective BOI reporting services in 2024. They should begin developing their support plan by mid-2023. Plans should consider how to inform clients about the legislation, poll existing clients, create forms and explanatory PDFs, support secure document uploads, and establish filing tracking processes. Law firms that primarily form entities on behalf of clients will also have to consider the narrower deadlines for reporting companies created in 2024. Their obligations as company applicants are to ensure reports are filed on time and not delayed by slow internal processes or busy beneficial owners at the reporting company. Alternatively, law firms can opt for off-the-shelf beneficial ownership report software solutions specifically designed for firms with comprehensive features to ensure compliance with the corporate transparency act. FincenFetch is an example of such software which allows law firms to simply send a “Fetch link” to their clients. These links bring clients to a guided online process that collects all necessary beneficial ownership information for filing reports with FinCEN and tracks their progress for the firm.
Phone calls and PDF forms led to significant time spent by firms to collect beneficial ownership information from each reporting company.
Attorneys need to consider how much office time will be devoted just to collecting beneficial owner information from each reporting company. Collecting beneficial owner information from reporting companies can be time-consuming for law firm staff. Based on timed trial scenarios, the method used to collect BOI data can vary in duration. For example, collecting BOI information through phone or zoom conferences required 65 minutes per sample reporting company with a single beneficial owner. Using drafted PDF forms required 55 minutes but resulted in more questions. Both methods also required a secondary secure file-sharing system to collect identification documents from individuals with ownership interests and avoid sharing PII over email. In contrast, using beneficial ownership reporting software such as FincenFetch required only 15 minutes of staff time per reporting company and eliminated the need for an additional system to collect acceptable identification documents. Adopting beneficial ownership information reporting software streamlines interactions between attorneys and clients by replacing legacy methods, thus making operations easier for any team working with corporate transparency act compliance services.
Flat-rate billing will likely be more profitable for law firms and accounting firms offering corporate transparency act filing services.
Firms will need to decide how to price BOI reporting services and maintain margins as the market gears up for flat rate filings. Early input from firms indicates that a large number of firms will flat-price these services within tiers based on the number of beneficial owners. Efficient law firms will benefit from flat fee models for beneficial ownership report filing despite the volume of reporting companies (32 million) pricing the market down. Traditional processes such as phone conferences or PDFs require an hour to collect BOI report information, resulting in a $400 billable item assuming a law firm charges $400 per hour. However, efficient law firms leveraging technology such as FincenFetch can collect the same information in 1/4 of an hour, enabling them to bill $1,600 per staff hour via four flat fee items of $400 each. Alternatively, they can reduce the fee to $250 and bill $1,000 per hour, attracting more clients than their competitors and earning future business from clients, including updated reports.
Updated beneficial ownership information reports will bring significant business to law firms and accounting firms in future years.
Updating beneficial ownership information reports will generate significant revenue for firms in 2024 and beyond. According to FinCEN rules, a reporting company must update its report whenever key information about the company or a beneficial owner changes, creating the opportunity for firms to provide valuable ongoing services to their clients. Events that mandate updated reports are common, such as an owner of a reporting company buying or selling their home, a change of office address, officers leaving the company, or a new investor purchasing more than 25% of the company. However, clients must know when they need to update their reports to avoid FinCEN penalties. By improving client understanding, firms can expect future contact as life events occur. Beneficial ownership reporting software can assist by teaching clients when they need to contact the firm and reminding them quarterly or yearly to update their reports if key information has changed. BOI reporting software also makes the update process faster, thus decreasing the likelihood of clients skipping the task altogether. Conversely, firms can devote staff time to sending reminders and teaching clients, but automation makes this task far easier and much less expensive for the firm.
Firms that utilize PDFs to instruct clients and collect information need to be prepared for significant drafting time and questions from clients.
Law firms need to consider how they will keep up with filing demand while educating each reporting company about the many nuances of the new law. The Corporate Transparency Act is complex and challenging for clients to grasp, so firms must simplify the rules when explaining the law to reporting companies. In a sample study, industry-designed PDFs containing all necessary beneficial owner information for BOI reports required three revisions and 22 total drafting hours to be clear and understandable for reporting companies. However, even after three revisions, sample reporting companies still had an average of four questions, mostly regarding the many definitions of substantial control, ownership interests, correct addresses to submit, foreign reporting company rules, and formation dates. Because each reporting company is subject to civil or criminal penalties from treasury’s financial crimes enforcement department for inaccurate reports, beneficial owners are highly motivated to fully understand the law to protect themselves. Online beneficial ownership reporting platforms can help alleviate these problems for firms and their clients. Clear instructions and examples offered to clients as they complete the online process reduce the number of client questions and improve the accuracy of information provided by reporting companies. Beneficial ownership reporting software also eliminates the time needed to draft, design, and revise forms to help firms enter this filing market faster.
Explaining which companies need to report and who should be on beneficial ownership reports is complex for clients.
In example scenarios, identifying each beneficial owner was incredibly confusing to each reporting company due to the definition of a beneficial owner, including officers, managers, equity owners, owners through options and other mechanisms, and any individual who exercises substantial control. This is in contrast to the definitions already used by financial institutions, which are much more narrow than under the corporate transparency act. Other common confusion points were identified regarding the definition of large operating companies, tax exempt entities, exclusions to the corporate transparency act, and definitions of substantial control. Guided CTA data collection software specifically addresses these common pain points by providing examples, help, and education as clients move through the process.
Firms will need to decide how they will track a high volume of pending beneficial ownership information reports.
Law firms must implement a system to track file statuses for reporting companies and encourage busy clients to gather all required information about their reporting company. The filing process involves some complicated steps that may require pauses in the submission of information. For instance, gathering identity documents from a less active second owner with substantial control or finding a company’s exact date of formation can take time. As clients are busy running their businesses, some may require gentle reminders to gather missing or delayed beneficial owner information. Law firms have two options to remind clients: attorneys can routinely check for delayed submissions from reporting companies and send reminder emails, or technology can automate this process, freeing up attorneys to focus on other essential tasks. FincenFetch supports automated reminders at scheduled times chosen by the law firm. These emails warmly remind a reporting company that their information is necessary to maintain compliance with the Corporate Transparency Act rules.
Law firms that primarily focus on incorporation services need to plan for additional considerations to support the corporate transparency act.
Law firms focusing on high volumes of incorporation services will need to include their staff in the initial report as the “company applicants” for every domestic reporting company they help form. These firms will also need significantly more preparation compared to smaller firms that offer a variety of services. Bulk incorporators will need to plan how they can get beneficial ownership collection methods embedded within their existing systems for reporting companies created by the firm, track the collection of this data for each reporting company, and manage submissions to FinCEN. This could easily add an extra 50% to the typical workload these firms perform for each entity created. Additionally, reporting companies created after January 1st, 2024, will have a much shorter deadline to file each initial report, so company applicants with high volumes of formations must streamline their services to avoid delays in collecting information from beneficial owners or filing reports. Fortunately, API endpoints can easily integrate new beneficial ownership collection software like FincenFetch with the existing online processes that bulk incorporators use today to keep each entity created in compliance with the new law.
Accounting firms should also consider their approach to beneficial ownership reporting services.
Accounting firms will need to consider if they also wish to offer filing services. In light of the enormous tax filing market, with tens of millions of reports filed by accounting firms to the Department of the Treasury, it would be a natural extension for these firms to assist their clients in gathering and reporting information about substantial control and beneficial owners. By offering beneficial ownership filing services, accounting firms can ensure their clients are compliant with regulations related to corporate transparency and can help them avoid fines. Offering these services can help accounting firms differentiate themselves in a competitive market and provide added value to their clients. By expanding their services to include beneficial ownership reporting, accounting firms can strengthen their relationships with their clients and help them stay ahead of regulatory requirements. FincenFetch brings the same benefits to accounting firms and law firms.
Filings will become easier for firms with access to batch filing tools after Fincen releases the BOSS batch filing system.
Fincen’s BOSS BOI filing system will eventually support batch filing for transmitting reporting company files in bulk. This will significantly speed up the filing process after reporting companies submit information about beneficial owners to the firm. However, law firms that use traditional data collection methods will still need to file information manually or create a customized system for batch filing. On the other hand, law firms that use beneficial ownership software like FincenFetch will be ready for this transition and will only need to click a button on their dashboard to transfer data to FinCEN when batch filing becomes available.