Federal Beneficial Ownership Information Rule: Obligations of Lawyers to Clients and Firms

Many small businesses are now subject to the Federal Beneficial Ownership Information (BOI) Reporting Rule under the Corporate Transparency Act. Effective January 1, 2024, all companies affected by this law—corporations, LLCs, companies created by filing certain documents with the Secretary of State—must report. For more information on who is required to report and the procedure for doing so, visit the Beneficial Ownership Information page on the FinCEN website. Please note, additional public comments have been requested through April 1, 2024 and further guidance may be on the horizon later this year.

There are stringent time restrictions, making it imperative that lawyers determine, sooner rather than later, what their responsibilities are with regard to current clients, former clients, and even their own firms.

What Duties Do Lawyers Owe Current Clients?

If a lawyer has an ongoing relationship with a client for whom the lawyer has previously established a business entity, the Kentucky Rules of Professional Conduct—including SCR Rules 1.1, 1.3, and 1.4—impose a duty on that lawyer to inform the client of the new reporting guidelines. Keep in mind, whether representation is ongoing is to be viewed from the perspective of the client. To determine this, consider whether the client would have reason to believe the relationship is ongoing, or previously concluded. For more information on when representation starts and ends, review our Lawyer-Client Relationship Continuum On-Demand CLE.

Duty of Communication

  • Reporting under the new BOI requirements is required in order for companies to avoid fines and other criminal and civil penalties. Without communication by the lawyer, a company may be unaware of these issues or may assume the lawyer will handle it as part of the representation creating a potential malpractice claim. To avoid these consequences, lawyers should communicate with the client regarding the company’s responsibility to file.
  • Rule 1.4(a)(3) requires lawyers to keep clients reasonably informed about the status of the matter. Additionally, Rule 1.4(b) requires lawyers to explain matters in such a way that clients can make informed decisions regarding the representation.
  • When lawyers inform clients about the new reporting requirements, it puts clients on notice so they can determine how the filing will be completed. Note, it is safest to provide this notice in writing so there is no question the communication occurred. This communication also provides an opportunity for lawyers to discuss with their clients whether or not filing will be the lawyer’s responsibility under the scope of the lawyer’s representation.

Does the BOI filing fall within the scope of representation?

  • The Kentucky Rules of Professional Conduct may also create a duty for lawyers to file the BOI for current clients. Rule 1.2(d) states that clients are to determine the objectives of representation. When an lawyer is establishing a business for a client, completing all filings necessary for the creation and maintenance of the company may be one objective the client had in mind. If a client expects that the lawyer will complete this documentation while the representation is ongoing, this responsibility may even be categorized as an implied duty under the Rules. Any lawyer who is representing a business impacted by these new regulations should not only reach out to their client, but should discuss whether the BOI filing is something the client expects the lawyer to complete as part of the representation. Take care to document what the client elects to do, particularly if the client does not have the lawyer prepare and submit the necessary disclosure.
  • In the event the letter of engagement limited the scope of the current representation so that the lawyer has specifically delineated duties, of which these types of filings are not included, then the lawyer may not be obligated to complete the filings, even if requested to do so by the client. However, it should be clear from the letter of engagement that this is not included and the lawyer should inform the client of this limitation. A new engagement letter should be utilized if the lawyer is ultimately retained to prepare and file the disclosure.

What Duties Do Lawyers Owe Former Clients?

There are no rules requiring a lawyer to keep clients up-to-date on changes in laws once the representation has been terminated. Thus, there is neither a duty to notify former clients of the new reporting requirements nor to complete the reporting for them. However, a lawyer is only relieved of these responsibilities if the representation was terminated. This means the client must understand that there is no longer a lawyer-client relationship.

To determine if this is the case, consider these questions:

  • Was a closing letter sent to the client?
  • Did the letter make it clear that the lawyer had completed all agreed-upon tasks?
  • Did the letter clearly state that the lawyer owed the client no more duties?
  • Did the client receive the letter?

If the answer to each of these is yes, the lawyer likely does not have a duty to inform the former client about the new BOI reporting requirements.

Out of professional courtesy, however, some lawyers may still choose to reach out to former clients and notify them about the new reporting requirements. If this is done, the lawyer should make it clear that the communication alone is not establishing a new lawyer-client relationship and that the lawyer is not taking on new responsibilities with respect to that client absent further communications to solidify the new engagement.

Upon notification by the lawyer, clients may request that the lawyer complete this task for them. Lawyers who choose to do so should send a new letter of engagement limiting the scope of the representation to merely filing the required documents and then terminate the relationship thereafter.

What about the solicitation rules?

  • Before reaching out to a former client—and most certainly before agreeing to do any further work for them—lawyers should familiarize themselves with the advertising rules, as well as rules on solicitation of business, and ensure that their conduct is in compliance with those rules. SCR Rule 4.5(1)(b) specifically allows lawyers to solicit employment if the lawyer had a previous lawyer-client relationship with the person contacted. However, there are some other caveats to this rule that should be considered, based upon each lawyer’s individual circumstances.

Are Law Firms Required to Comply With the BOI Rule?

The BOI reporting requirements apply to corporations, LLCs, and other businesses created by filing certain documents with the Secretary of State. For smaller entities, such as firms with sole practitioners or only a couple lawyers, consider the Small Entity Compliance Guide on the FinCEN’s website to determine if the reporting requirements apply. According to this Guide, it appears that firms would be required to report if they were formed by submitting a corporation, LLP, LLC, or other business entity form to the Kentucky Secretary of State. Before filing, however, lawyers should read through the Guide themselves to ensure they meet all the requirements.

Lawyers Mutual of Kentucky will continue to bring you more information and guidance as it become available. For questions, contact Courtney Risk (risk@lmick.com).

By: Madelyn Day
Madelyn is a third-year law student at the University of Kentucky College of Law. She received a B.A. in political science with a minor in criminology from the University of Kentucky. She previously served as the Kentucky Bar Foundation Intern and co-authored the Client Trust Account Basics Handbook with Guion Johnstone and LMICK’s Courtney Risk. She plans to become a prosecutor and serve the Central Kentucky area after graduation.