New Customer applications
A lawyer needs to draft new customer applications for certain industries. Lawyer input is needed whenever laws and risks arise from mistakes regarding customer attributes and intentions.
These risks include:
- Anti-Money Laundering Laws
- Know your Customer Laws
- Investor Risk Tolerances
- Investor Suitability Information
- HIPAA Laws (medical records)
- FINRA Insiders (Rule 3110)
- Taxes
- Multiple Owners
- High Risk Industries
- Accredited Investor Qualifications
- SEC Rule 144: for Directors, policy-making officers or stockholders with more than 10%
These and other regulatory issues require specialized new customer and client applications. At most, an application customized by a lawyer is necessary to comply with the law. At least, a lawyer-created application is wise to reduce your lawsuit liability risk.
Do I Need an Application for New Customers?
Yes. You Need an Application for every New Customer. The reasons include:
- The Law Requires an Application
- It is Your Defense Against Complaints
- It is Your Defense Against Lawsuits
There are laws that restrict what can be done with customers. There are laws requiring you to collect certain information about customers. There are conflicts between customers. Conflicts of interest may arise. Customers may transfer their business to others. The new customer application is your first line of defense and legal compliance for customer-based business risks. The application is one of your first opportunities to impress your customers. The new customer application is their first opportunity to back out and choose your competitor. It is important to “nail” the customer application.
Why Pay a Lawyer to Create Your Customer Application?
Lawyers are expensive. The legal industry is not your industry. Taking the time to explain your business to some lawyers will be time-consuming, expensive, and possibly futile.
Why waste the time, energy, and money for such a small detail, like an application? The customer has already agreed to use your business.
- Why pay to add barriers to their business. Right?
- No one knows your customers better than you. Right?
- No one knows your business better than you. Right?
You Need an Application When Your Customer is an Entity
- Define Authority
- Define Parameters of What is Expected of You
- Target the Type of Entity (C-Corp, S-Corp, Non-Profit, Investment Club, Partnership, Sole Proprietership, LLC, Trust, Qualified Plan, IRA)
- Define Ownership Type (Fee Simple, Tenants in Common, Joint Tenants, with or without survivorship, Tenancy by the Entirety, Community Property)
Is the New Customer in an "Industry of Interest?"
Certain industries have special regulations, reporting requirements, and rules that apply to them. You do not have the luxury of claiming ignorance. Declaring “gee, I never thought to ask and they never disclosed” will not thwart the government from prosecuting you. You must learn whether special rules apply to each of your clients so that you may either comply with those rules or turn the client away.
Examples of a customer to whom special rules apply include a:
- Casino
- Gem/Precious Metal Dealer
- Gun/Firearms Dealer
- Money Services Business
- Money Transmittor
- Foreign N.G.O. (Non-Governmental Organization)
- Foreign PEP (Politically Exposed Person)
The best type of problem is an avoided problem. Customer applications help you see, decide, deal with, and possibly avoid problem clients.
Avoid Being Sued by your Customer Through a Well-Drafted Application
Lawsuits arise when someone loses money or is otherwise damaged. Examples of instigating events include:
- Economic Damages
- Loss of Business Opportunity
- Pain
- Suffering
- Reputation Damage
- Personal Injury
- Real Estate (land) loss
- Penalties defined by law
Will you be sued when one of your customers perceives they have suffered a loss? you may “get along” wonderfully. However, when it comes between their relationship with you, and providing for their family, keeping their job, saving their reputation, assigning blame, and getting money, “get along” is unlikely to be enough.
The basis of any lawsuit is the breach of a duty. The duty, or its breach, is often defined at the outset of the relationship. This is where the customer application shines brightest! A well thought-out, smartly drafted application can save your business and your personal assets. Do not be “penny-wise and pound-foolish.” Begin with the end in mind in your business relationships.
