What Is Evidence In Business Formation?

By IncNow | Published June 27, 2024

“Can I see your evidence of filing?” That is what the banker said when I went to open my business account. The banker then said can I see your “articles?” How about the “proof” your company was formed? These terms are all synonymous. 

Banks need certain documents for “know your customer” law compliance under the Bank Secrecy Act. The most fundamental is the public document filed with the secretary of state, like the birth certificate for your company. Many entrepreneurs unfamiliar with this industry jargon would benefit from learning certain business formation terminology.

Lack of Business Formation Vocabulary in Education

It is not surprising that in high school and college, students never learn the vocabulary of incorporating new businesses. What is surprising is that business formation vocabulary is not even part of the curriculum in law schools or business schools. Moreover, entrepreneurship classes breeze past key distinctions in the vocabulary of forming a business.

With the newly enacted Corporate Transparency Act (CTA), it is more important than ever for new entrepreneurs to understand certain business formation mechanics, especially terms that go into calculating the deadline for complying with the CTA.

Corporate Transparency Act (CTA) Deadlines

Importantly, new businesses formed in 2024 only have 90 days to file their Beneficial Ownership Information Report (BOIR) with FinCEN. Many incorporation service companies will tell you this 90-day clock starts on the date of formation. While this may be an easy point in time to reference, the actual clock often starts later by a day, a week, or even a month depending on how slow the secretary of state processes your new company filing.

The Financial Crimes Enforcement Network (FinCEN) balances the need to disclose important actors hiding behind opaque corporate structures with the practical realities of the vast majority of unsophisticated legitimate business operators. FinCEN understands some states take weeks to approve a new company’s formation certificate before the entrepreneur knows the business has been formed.

Why Does a Company Need to Be Reviewed Before It’s Formed?

Not all new company filings get approved. The Secretary of State may suspend or reject a filing for not meeting minimum statutory filing requirements. For example, the corporate name may conflict with another name or certain checklist items could be missing, such as the number of shares of authorized stock and par value.

FinCEN’s Approval Date and Its Implications

FinCEN announced that it would use the date of approval to start the 90-day clock rather than the date of filing. The approval date is the sooner of (1) the day the secretary of state returns the “evidence” of formation to the service who initiates your new company filing request to the secretary of state or (2) the day your company first appears on the state’s public records website if a search were to be conducted of businesses registered in the state.

The challenge with using the approval date rather than the filing date is that the date of approval cannot be easily ascertained in hindsight by a public records review.

What Are The Penalties For Missing the CTA Deadline?

Using the date of approval was an accommodation when an earlier version of the CTA regulations only allowed 30 days from the formation date to file. The updated CTA regulations allow 90 calendar days for companies formed in 2024. This FinCEN accommodation of a few extra days or weeks made sure there was plenty of time to comply. 

In contrast, it should be noted new companies formed in 2025 and thereafter will only have 30 calendar days to file after the approval date. You will want to avoid $591 daily fines for each day after the deadline that the BOI report is late up to $10,000 per violation plus up to 2 years in jail for willful noncompliance.

Definition of Evidence Under the CTA

What Is Evidence Under CTA?

The courtroom definition of “evidence” should be distinguished from “evidence” in the context of company formation. When a lawyer or entrepreneur wants to form a business, they need to submit a government filing to officially create the company. For example, if this were an LLC, the document is usually called a Certificate of Formation or Articles of Organization, depending on the terminology used in the state statute where the company is formed. 

This “evidence” document is usually one page long. The evidence contains a stamp showing the filing date as the formation date. That represents the date the filing was sent to the secretary of state’s office for review and approval. Upon approval, the filing office affixes an electronic stamp with the date and time of filing and a unique state filing ID number. 

Once the stamp has been affixed, only at that time does the document get often referred to as the “evidence of filing”. It is “evidence” because it proves when the new formation has become a company allowed to do business. In other words, on the approval date, the formation date is “backdated” to the time of filing, retroactively bringing the company into being a legal person. 

Banks and lenders request to see this “evidence” before they open a bank account or transact significant business to ensure the company formation process was initiated successfully. Nevertheless, that first step is not the last step in due formation. For example, an LLC also has a private agreement known as an LLC Operating Agreement required to outline ownership and management. 

By comparison, a corporation has private documents consisting of bylaws, minutes, and stock certificates that must be properly issued for a corporation to be duly incorporated.

What Role Do Filing Service Companies Play?

Filing service companies receive and forward the evidence approved by the state to their customers. Service companies typically also help provide template operating agreements for an LLC. The evidence and internal template documents are delivered to its customer who ordered the company formation. 

While it is common for service companies to deliver the evidence the day it is received back from the secretary of state, sometimes that evidence is sent from the filing service company to the customer a day or more later. No record from the secretary of state or online identifies the day the state approved a filing. 

Similarly, the list of companies on the public registry does not show the date of approval, only the date of initial filing. This is why it is so challenging for entrepreneurs to determine exactly the date when the company filing was approved to start the 90-day clock. Again, the evidence only shows the date the company was submitted to the state. No record exists of the date when the secretary of state lists the company on its public registry.

How To Avoid Penalties for Late BOI Reports

Each day following the first 90 calendar days from approval, $591 daily fines accrue, a federal penalty late fee of up to $10,000 total per violation. Under the CTA, almost all companies are required to file initial Beneficial Ownership Information reports with FinCEN. 

Knowing when your filing was approved would be helpful in defending late fee penalty cases should an enforcement action arise. Entrepreneurs are left not knowing when the 90-day clock starts. Therefore, the best practice is not to wait more than 90 days past the date of filing with the secretary of state. Relying on the date the company was first listed for approval could create an evidentiary problem during an enforcement action.

90-Day CTA Trigger Date Timeline

  1. A business owner sends an order to a filing service to form their company.
  2. The filing service prepares and signs formation filing document
  3. The filing service starts the process and submits the filing to the Secretary of State.
  4. The Secretary of State approves new company filing and the company name appears on the public entity record. 
  5. The Secretary of State’s office forwards the filing service with evidence of approval of new company filing.
  6. The filing service forwards the evidence of filing and other company documents to the business owner.
  7. The business owner obtains an Employer Identification Number (EIN) from the IRS
  8. The business owner files a Beneficial Ownership Information Report (BOIR) with FinCEN to comply with the Corporate Transparency Act within 90 calendar days of when evidence was approved for companies in 2024. 

For companies formed in 2025 and thereafter, within 30 days of the date of evidence approval. For companies formed in 2023 and earlier, the initial BOI report must be filed by December 31, 2024.

Top Benefits of Understanding Business Formation 

Prior to the enactment of the CTA, entrepreneurs could simply rely on service companies to handle the mechanics. Back then, entrepreneurs did not have a need to know the process any more than someone buying a new home does not need to know every step in designing and building their home. 

While knowing how your home’s systems work can be handled by contractors, the same may not be advisable when it comes to business formation. Examples abound of the benefits of knowing the internal affairs of the structure of your business, such as how an LLC’s operating agreement is structured. 

Likewise, knowing the need for a shareholder agreement in a corporation is useful when wanting to keep your business partners from destroying what you have built.

How to Find Your Company Formation Filing Date

If you are unsure of the date when the secretary of state approved your company formation filing, you can ask your filing service company when the secretary of state in your state of incorporation returned the filing to their office. However, in the absence of knowing when your company name first appeared on a public records database using the date of formation is a safe bet.

Additional Business Steps Not Relevant under CTA

  • Date EIN applied for or obtained (although the number is required for CTA filing)
  • Date filing service subsequently sends formation documents to customers by email or physical mail
  • Date business license obtained
  • Date bank account opened
  • Date internal business documents signed
  • Date business transactions start
  • Date company acquires assets

When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go