TRANSCRIPT
Greg Corombos: Hi, I'm Greg Corombos. Our guest in this edition of Expert Insights is Ross Aronowitz. He's the Vice President, Head of Law Firm segment at CT Corporation. This podcast is one in a series focusing on the Corporate Transparency Act. CT Corporation has received hundreds of questions from customers on the Corporate Transparency Act’s implications. And during today's podcast, Ross will focus on the Corporate Transparency Act’s implications for law firms and the clients they serve. And Ross, welcome to the podcast. Great to have you.
Ross Aronowitz: Thanks for having me, Greg.
Greg Corombos: Well, before we dig into law firms in particular, let's recap why we should care about the Corporate Transparency Act.
Ross Aronowitz: The Corporate Transparency Act is pretty much the most significant piece of federal legislation affecting businesses in over 100 years. It was enacted as part of the National Defense Authorization Act in 2021, with the goal of enhancing transparency to combat illicit activities that could be facilitated through layers of corporate structures, like money laundering or the financing of terrorism. So the central provision of the Act, which went into effect [at] the beginning of this year, is that certain companies report information on their beneficial owners to the Financial Crimes Enforcement Network, which is FinCEN, which is part of the Department of the Treasury.
Greg Corombos: What criteria does one need to meet to be considered a beneficial owner under this provision?
Ross Aronowitz: Beneficial owners are individuals who either exercise substantial control over business or receive substantial economic benefit from it. So these individuals include those who own 25% or more of the entity's equity interest or have significant managerial control.
Greg Corombos: How does this affect law firms? Let's get to that now.
Ross Aronowitz: Yeah, so law firms are pretty at the center of this act. It affects them in many ways, for a number of reasons. One, they could themselves be considered a reporting company. They are affected by this law, because they would have to report beneficial ownership information. But two, more broadly, law firms should be prepared to advise their clients as [to] how they need to comply with the beneficial ownership information reporting requirement. Companies often depend on their advisors, like law firms, to make them aware and support them with a compliance requirement. So law firms should be prepared to do so. Be prepared to tell their clients about this Act and how they should report on that. On top of those two things…for those law firms who assist their clients in forming new entities, those could be attorneys, paralegals, or other staff. They may be considered [a] company applicant in the filing.
Greg Corombos: Explain what a company applicant is.
Ross Aronowitz: So a company applicant is an individual who directly files the document that creates the reporting company, or is responsible for directing or controlling the filing. So as I mentioned, that can include the attorney or paralegal at the law firm. So although the Corporate Transparency Act is [about] a filing that you need to do in relation to ensuring that the government knows who the beneficial owner is, it is tightly connected to the formation act. So if the law firm is involved in the formation act and is advising their client, they could be considered a company applicant, and then they would have to be recognized as part of the BOI filing.
Greg Corombos: So the person ultimately responsible for submitting formation documents. In terms of the BOI report, what is required of the company applicant?
Ross Aronowitz: A company applicant must provide personally identifiable information like the beneficial owner. It's a significant requirement, and law firms need to decide how they want to deal with that, if they're doing this work, if they're doing formation work for their client.
Greg Corombos: Now, the CTA could be a significant undertaking for law firms. So what have you found are the main concerns or challenges for law firms regarding the Corporate Transparency Act?
Ross Aronowitz: There [are] many, many challenges or concerns that law firms have expressed regarding the Corporate Transparency Act. First, you need to manage reporting deadlines for your clients. So existing businesses, those formed before January of this year, have until January of next year, so January 2025, to complete their initial filing. But any new formations or any upcoming transactions only have 90 days to submit the report. So if you think about managing all of those deadlines across a number of clients, who may have a number of entities, it can get quite complex as far as when their deadlines are. So that's one consideration.
In addition, [there] is the administrative burden. Right? Law firms may need to allocate resources, train staff, implement new systems to manage the process of advising their clients on how to file this report. On top of that, you have client relations. Clients may be quite hesitant to disclose sensitive beneficial ownership information to the government, to their advisors. So navigating that hesitancy is also important.
And then if you think about, you know, that administrative burden that I talked about, just collecting and storing all of that information, some of that very sensitive, personally identifiable information. Firms need to be diligent about accessing, storing, [and] protecting that sensitive information in a secure manner. The good news, for many firms, this could also allow an opportunity to deepen their relationship with their clients and provide more services to them. So a number of concerns to think about, but also an opportunity.
Greg Corombos: It's always good to have the opportunity for a better relationship with clients, which are hopefully good relationships already. So you've given us a lot of considerations that need to be top of mind. Any other considerations that firms need to be aware of?
Ross Aronowitz: Ultimately, the firm needs to decide what level of support they want to provide their clients. As I mentioned, some firms see this new reporting work as an opportunity to grow their business, add a new practice area. But for others, just given the considerations that we talked about, they would like to avoid it. They do not want to think about how to deal with the personal identifiable information. [They] do not want to think about how they're going to collect and store it, how they're going to manage all the reporting deadlines. Right? So they ideally want to avoid it, but customers may be asking for help. So thinking about how are they going to manage that burden if customers come to them asking for help and advice? Many firms look to technology solutions that could support them in handling their clients BOI reporting. CT has developed a BOI platform that solves a lot of the challenges law firms face when supporting their clients. The BOI platform allows law firms to manage filings from multiple end clients. It provides a secure interface to collect PII from their clients without the firm having to store it locally. If they already have information about the entity stored somewhere, they can make bulk upload of that information. They can file amendments off of the original report. So it really provides a way of simplifying the work and lowering the burden off of the law firm.
Greg Corombos: Ross, you've given us so much excellent information today about why the CTA is significant, and specifically the role that law firms are going to play in helping clients stay compliant with this new law. Any final words of wisdom?
Ross Aronowitz: Yeah, thanks, Greg. I recognize that the CTA can feel overwhelming. There is a lot to consider. The first step is just being aware that the Corporate Transparency Act exists and what its implications [are]. Good news for those listening. They're already at step one. But then step two, as I mentioned, is deciding what role they want to play in supporting their clients. Do they want to actively be supporting them in filing? Or do they just want to advise their clients on how to file but tell the clients to do it themselves. And then based on that, thinking about how they want to implement that role. Likely, a technology solution like CT’s can support them in some of those roles, or they can recommend a technology solution like CT’s to their clients. So a lot to consider. But, you know, step one is understanding the law. And then step two is deciding what role they want to play.
Greg Corombos: As I said, it's a series of podcasts that we're doing here. And one of the things we're learning is that business leaders are going to be depending on law firms to kind of guide them through this process. So having some advice for the law firms as they do that is critically important as well. And Ross, we really appreciate your time and your expertise today. Thank you.
Ross Aronowitz: Thank you.
Greg Corombos: Ross Aronowitz is Vice President, Head of Law Firms Segment at CT Corporation. I'm Greg Corombos reporting for Expert Insights. For more information on this subject, please visit ctcorporation.com.
