Why “Paper Companies” Are Under More Scrutiny — What Foreign Founders Should Know
For many foreign founders, setting up a company in the United States or Canada is a strategic first step. Sometimes the business launches immediately. Other times, the company exists quietly while plans, funding, or immigration matters fall into place.
That kind of “paper company” — an entity with little or no operational activity — has long been common and, in most cases, perfectly lawful.
What’s changed is how governments look at these companies today.
Across both the U.S. and Canada, regulators are paying closer attention to who actually owns and controls a company, particularly when the company has minimal operations. This shift is not aimed at legitimate founders — but it does mean that foreign-owned or lightly used entities now attract more questions than they did in the past.
Why Governments Care More About Ownership Now
Both countries have made corporate transparency a regulatory priority. U.S. and Canadian authorities have publicly acknowledged that companies with unclear or undisclosed ownership structures have been used in the past to facilitate money laundering, tax evasion, and regulatory avoidance.
As a result, regulators now focus less on whether a company is “active” and more on whether its ownership and control are clearly identified and properly documented.
For foreign founders, this matters because cross-border ownership structures naturally appear more complex. A company owned by individuals outside the country, even when entirely legitimate, can appear opaque unless records are accurate and well maintained.
What This Looks Like in the United States
In the United States, increased scrutiny appears at both the federal and state levels.
At the federal level, the Financial Crimes Enforcement Network (FinCEN) has emphasized beneficial ownership transparency. The policy objective is straightforward: authorities want to be able to identify the real individuals who ultimately own or control companies registered to do business in the U.S., particularly where foreign ownership is involved.
At the state level, Secretaries of State continue to expect companies to:
file required reports on time
maintain a valid registered agent
keep ownership and business records accurate and up to date
When a company exists largely on paper but falls behind on filings, lacks a reliable point of contact, or appears disconnected from its listed owners, that is often when issues arise — not because the company is foreign-owned, but because accountability is unclear.
Canada’s Direction Is Similar
Canada has taken a parallel approach. Federal and provincial authorities have publicly stated that anonymous or poorly documented companies undermine confidence in the business system.
As a result, Canada has been strengthening ownership transparency requirements, including:
mandatory internal registers of individuals with significant control
increased coordination between corporate registries and tax authorities
For foreign founders, this means that incorporation alone is no longer sufficient. Companies are expected to identify and document who ultimately controls them, even if the business is still in an early or planning phase.
Why “Quiet” Companies Raise Questions
From a regulator’s perspective, a company with no employees, limited transactions, and owners located abroad is not automatically a problem — but it does require clarity.
Authorities are generally less concerned about inactivity and more concerned about lack of transparency or accountability. A dormant company that maintains proper filings, clear ownership records, and good standing is far less likely to face scrutiny than a company that exists only as a name on a registry.
This is particularly important for foreign founders who assume they can “activate” a company later. In today’s regulatory environment, compliance expectations begin from day one.
Practical Takeaways for Foreign Founders
If you are a foreign founder with a U.S. or Canadian company — whether active or not — a few principles help reduce risk and friction:
Ensure ownership information is accurate and kept current
Understand which filings apply at the federal, state, or provincial level
Maintain good standing even if the business is not yet operating
Be prepared for questions from banks, partners, or authorities
These steps do not eliminate scrutiny — but they help demonstrate legitimacy and preserve flexibility for future growth, financing, or immigration-related plans.
Paper companies have not become illegal. What has changed is the expectation that every company has a clearly identifiable human behind it.
For foreign founders, this shift does not need to be intimidating. With proper planning and ongoing compliance, a lightly used or early-stage company can still be a practical business tool — just one that now comes with clearer responsibilities.
Transparency is no longer optional. It is part of doing business across borders today.
Setting up a company abroad is only the first step. Keeping it compliant is what protects your future plans.
Borderless Counsel helps foreign founders stay in good standing — quietly, correctly, and from day one.
Reach out before scrutiny becomes friction.