Notice: New Federal Filing Requirement Starting January 1, 2024
The Corporate Transparency Act – Is Action Required by Your Entity?
On January 1, 2021, Congress ratified the Corporate Transparency Act (the CTA) as part of the National Defense Authorization Act of 2021. The CTA is designed to enhance the ability of the U.S Treasury’s Financial Crime Enforcement Network (FinCEN) to protect U.S. national security and the U.S. financial system from illicit use and provide essential information to various governmental agencies and financial institutions to help prevent terrorism, drug trafficking, fraud, corruption and money laundering in the U.S.
Who? – All Reporting Companies
The CTA requires all “reporting companies” to report beneficial ownership information (BOI) to FinCEN. A reporting company is any domestic entity created by filing a document with a secretary of state or similar office under the laws of any State or Indian tribunal or any foreign entity registered to do business in any State of Tribal jurisdiction by filing a document with a secretary of state or similar office. There are 23 specific exemptions to the reporting requirement, most of which apply to entities already regulated by other federal laws and agencies. These exemptions include, without limitation, the following:
- Large operating companies (entities that employ more than 20 full-time employees, have an operating presence at a physical office in the U.S. and have gross receipts or sales in excess of $5,000,000 in the previous year).
- Tax-exempt entities under Section 501(c) of the Internal Revenue Code and their subsidiaries.
- Public accounting firms registered under Section 102 of the Sarbanes-Oxley Act of 2022.
- Various financial institutions.
- Certain inactive entities in existence on or before January 1, 2020.
FinCEN estimates that over 32 million current entities will be required to report under the CTA and that nearly five million new entities will be required to report each year starting in 2024. It is imperative that your entity determine if the CTA reporting requirement applies to it and, if so, prepare to file. Non-compliance may result in civil penalties of up to $500 for each day of a violation and up to $10,000 in fines and two years imprisonment. These penalties may apply to the reporting company itself and to the following:
- any person who directs or controls others with reporting obligations;
- any person that willfully submits false or fraudulent information;
- any person causing a reporting company to fail to meet its obligations under the CTA; and
- senior officers of the reporting company (president, general counsel, CEO, CFO, COO, etc.).
What? - Reporting Company Information, Beneficial Ownership Information, and Company Applicant Information
Each reporting company must report:
- its legal name;
- any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- the current street address of its principal place of business if that address is in the U.S., or, for reporting companies whose principal place of business is outside the U.S., the current address from which the company conducts business in the U.S.;
- its jurisdiction of formation or registration; and
- its Taxpayer Identification Number.
Further, each reporting company must submit its Beneficial Ownership Information (BOI) to FinCEN. A beneficial owner is any individual:
- who directly or indirectly exercises “substantial control” over the reporting company; or
- who directly or indirectly owns or controls 25% or more of the “ownership interests” of the reporting company.
Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions the reporting company makes. In addition, any senior officer is deemed to have substantial control over a reporting company.
Finally, each reporting company coming into existence on or after January 1, 2024, must also identify its Company Applicant Information to FinCEN. There can be up to two individuals who qualify as company applicants:
- the individual who directly files the document that creates, or first registers, the reporting company; and
- the individual that is primarily responsible for directing or controlling the filing of the relevant document.
No reporting company will have more than two company applicants. Only reporting companies formed or registered on or after January 1, 2024, will have to report their company applicants.
For each individual who is a beneficial owner or a company applicant, a reporting company will have to report and submit:
- The individual’s name, date of birth and address.
- A unique identifying number from an acceptable identification document.
- The name of the state or jurisdiction that issued the identification document.
- An image of the identification document associated with the unique identifying number reported to FinCEN.
When? - Date of Formation, Updates, and Corrections
The filing requirement for a reporting company is dictated by the date of its creation, formation or (if a foreign reporting company) registration to do business. A reporting company created, formed or registered to do business as a foreign entity:
- before January 1, 2024, has until January 1, 2025, to file its initial BOI report.
- during 2024, has 90 days to file its initial BOI report (which must include its company applicant information).
- on or after January 1, 2025, has 30 days to file its initial BOI report (which must include its company applicant information).
These 90- and 30-day deadlines run from the time the reporting company receives actual notice that its creation, formation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation, formation or registration, whichever is earlier.
Each reporting company must also timely file any updates or corrections to its BOI. Any updates required due to a change in BOI must be filed within 30 days of such change. Any corrections of inaccurate or incomplete information must be filed within 30 days of becoming aware of such inaccuracy or incompletion.
Where? - FinCEN’s Online System
The reporting company must make any required filings using the FinCEN Beneficial Ownership Secure System (BOSS), which is a cloud-based, secure, non-public database and can only be accessed through the FinCEN website – https://www.fincen.gov/. Access to BOSS will be limited to certain U.S. Federal, state, local, and Tribal governmental agencies, certain foreign law enforcement agencies, certain financial institutions, certain Federal regulators and the U.S. Treasury, though the reasons to permit and level of access for each varies.
Help? - Eastman & Smith’s Business Section is Here For You
The CTA introduces new and nuanced compliance and reporting challenges for millions of small businesses and entities in the U.S. This is sure to raise numerous questions: Is your entity required to comply and report? Is your entity exempt from the CTA? Who is a beneficial owner? Who is a company applicant? What information must be provided? Etc.
More information regarding the CTA can be found in FinCEN’s BOI Small Entity Compliance Guide and FinCEN’s Beneficial Ownership Information Frequently Asked Questions.
In addition, the attorneys of Eastman & Smith’s Business Law Practice Group are here to help. Our attorneys and paralegals are ready to work with you to address the challenges of the CTA. For more information about our practice group, you can visit the description our website, and to seek direct assistance, you can contact your Eastman & Smith attorney or one of our Business Law attorneys.