Summary of the Corporate Transparency Act
- Beginning on January 1, 2024, entities that qualify as “reporting companies” under the Corporate Transparency Act (the “CTA”) are required to file a report containing information about themselves, their beneficial owners, and company applicants (for entities formed on or after January 1, 2024) with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
- Entities in existence prior to January 1, 2024 have until January 1, 2025 to file their initial Beneficial Ownership Information (“BOI”) reports. These entities do not have to include company applicants on their reports.
- Entities formed on or after January 1, 2024 and before January 1, 2025 have 90 calendar days from the date of creation or registration to file.
- Entities formed on or after January 1, 2025 have 30 calendar days from the date of creation or registration to file.
Companies Subject to the CTA
- The definition of a reporting company encompasses essentially all entities formed by filing with the secretary of state or similar office, including LLCs and corporations.
- Trusts, general partnerships, and sole proprietorships are examples of entities that generally do not fall within the definition of a reporting company. However, if a trust is formed in a jurisdiction that requires filing with the secretary of state to be created, then such trust would be a reporting company.
- There are twenty-three exemptions for entities that meet the definition of a reporting company but are not required to file BOI reports with FinCEN. Most of these exemptions are for entities that are generally already subject to significant reporting requirements, such as banks, accounting firms, insurance companies, and tax-exempt entities.
- The complete list of exempt entities is included in the Reporting Company Exemptions document, which was provided by FinCEN in its Small Entity Compliance Guide and contains detailed descriptions for determining whether an entity is exempt.
- There is an exemption for “large operating companies,” but this exemption cannot be used for newly formed entities because one of the requirements is that the entity has filed a federal income tax or information return for the previous year demonstrating more than $5 million in gross receipts or sales.
Identification of Beneficial Owners and Company Applicants
- Beneficial owners include individuals who directly or indirectly exercise substantial control over a reporting company, or own or control at least 25% of the reporting company’s ownership interests.
- An individual is deemed to exercise substantial control if he or she has the authority to make important decisions for the reporting company, the power to appoint or remove certain officers, or is a senior officer. Additional examples of substantial control are included in the Small Entity Compliance Guide and Beneficial Ownership Information FAQs document.
- When determining whether an individual owns or controls 25% of the reporting company’s ownership interests, the definition of “ownership interest” is intended to be broad. A detailed list of various types of ownership interests is also included in the Small Entity Compliance Guide and Beneficial Ownership Information FAQs document.
- A company applicant is the individual who either directly files the document creating the reporting company or who is primarily responsible for directing or controlling the filing of such document.
- For example, if an attorney drafts the charter for a new corporation (which is a reporting company and does not qualify for any exemption) but then directs his or her paralegal to file the charter with the Tennessee Secretary of State, both the attorney and paralegal would be company applicants.
- If you are the individual responsible for creating or filing organizing documents for corporate entities that qualify as reporting companies, then you will likely be considered a company applicant and will be required to provide your personal information to the reporting company.
- Alternatively, you can apply for a FinCEN identifier, which is a unique number that you can obtain by providing your personal information to FinCEN, and, in turn, you would provide this identifier to the reporting company. This is likely the most efficient option for individuals who will be regularly involved in entity formation, but the downside is that the individual would be required to report any changes in his or her personal information, such as a new business address or name change, within 30 days of such change.
Obligations of Reporting Companies
- The obligation to file the BOI report with FinCEN falls on the reporting company; however, anyone who the reporting company has authorized to act on its behalf (i.e., an attorney) may file the report.
- While there is no annual reporting requirement, a reporting company is required to file an updated or corrected BOI report if there is a change or inaccuracy found in its information or information about its beneficial owners. The reporting company must file such updated BOI report within 30 days of becoming aware or having reason to know of such change or previously reported error.
Consequences of Noncompliance
- Willful violations of the CTA, such as filing or attempting to file false information with FinCEN, refusing to correct or update information, and withholding personal information from a reporting company may result in penalties of up to $500 per day that the violation continues, up to $10,000, and criminal penalties of up to two years imprisonment.
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