A handful of license applications require personal financial statements from officers, directors, and certain other individuals named in the application. The requirement is certainly one of the most significant pain points when it comes to the license application process, as individuals are often (understandably) sensitive about disclosing their finances. For this reason, the requirement must be messaged clearly and delicately to control persons. Here are several considerations to keep in mind when it comes to soliciting, completing, and submitting personal financial statements.
On timing, earlier is not always better
Not all regulators specify a timeframe within which a personal financial statement must be dated. In such cases, statements dated within 90 days of license application submission are generally acceptable. With this in mind, it is critical that control persons not be instructed to complete personal financial statements until relatively close in time to when the license application is submitted. Otherwise, the company may find itself in the uncomfortable position of having to ask these individuals to provide additional, more current personal financial statements.
A personal financial statement must contain sufficient information to allow the regulator to confirm that the license applicant and its control persons demonstrate the financial responsibility and soundness necessary to operate the business. While a company may be subject to a minimum net worth requirement (and that minimum net worth must be reflected in the company’s financial statement), we are unaware of any comparable regulatory requirement for a company’s control persons.
Many states requiring a personal financial statement provide a state-specific form on which to provide the requisite information. However, state-specific forms generally require the same information, including:
- Balance sheet reflecting assets and liabilities
- Supporting schedules for real estate, personal property, and other assets
- Supporting schedules describing accounts payable, including mortgages, installment loans and collateral, and revolving accounts
We often see personal financial statements kicked back because they are not filled out completely or because they are not totaled correctly. So they need to be carefully reviewed prior to submission.
Some states will accept personal financial statements on other state-specific forms. This means that an individual subject to multiple state personal financial statement requirements may only need to complete a single statement. And where a state does not provide a state-specific form, APPROVED has a straight-forward template that can be used.
Given the sensitivity of the information contained in a personal financial statement, regulators understand the need to treat them confidentially. Indeed, personal financial statements should generally be exempt from disclosure under the Freedom of Information Act and similar state laws. Nevertheless, as an added layer of protection, it is recommended to stamp all personal financial statements as “confidential.”
Waivers can be requested, but can delay the licensing process
In some cases, states may be amenable to waiving personal financial statement requirements. This is more likely when the waiver request is discerning and robust, and significant personal information on the individual is otherwise provided or publicly available. But there is never a guarantee that such a waiver request will be accepted. In fact, we have experience with waiver requests for well-known billionaires associated with public companies being rejected. It is also important to keep in mind that – even when accepted – waiver requests tend to delay the processing of license applications.
Use outside resources
Oftentimes, individuals who are required to provide personal financial statements are concerned with such documents being handled by their colleagues. APPROVED has the experience and resources to serve as an intermediary through this sensitive process, maintaining confidentiality and working directly with individuals to prepare and submit their personal financial statements to meet state requirements.