On January 1, 2024, the requirements of the Corporate Transparency Act (“CTA”) took effect. Under the CTA, many small and mid-sized businesses are required to file reports disclosing information about their business and its ownership, called “Beneficial Ownership Information” Reports. The important deadlines are as follows:
- If your entity was formed before January 1, 2024, you have until January 1, 2025, to file all necessary reports.
- If your entity is formed after January 1, 2024 but before January 1, 2025, you will have will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
- Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is newly enacted federal law reflecting a significant legislative development in the United States aimed at enhancing corporate transparency and preventing the use of anonymous shell companies for money laundering, fraud, terrorism, and other illicit activities. The CTA has introduced new reporting requirements for certain business entities identified as “reporting companies,” impacting a wide range of business owners across the country to disclose information about the entity and its “beneficial owners” to the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Compliance with the CTA requires an entity to determine whether it is required to file a report and what information it must disclose, including who qualifies as the “beneficial owners” of the entity. Notably, compliance also requires filing updated reports any time there is a change to any information previously reported pursuant to the CTA.
Who is required to report?
The CTA requires that a “reporting company” prepare and file the Beneficial Owner Information report. The term reporting company is defined broadly in the CTA to include any corporation, limited liability company, or other entity that is created through filings with a secretary of state or similar office under the law of a state. It also includes entities that are formed under the laws of a foreign country and registered to do business with a state office. Most small businesses will be required to report with FinCEN.
Are there exemptions from filing a Beneficial Ownership Information Report?
There are 23 types of entities exempt from the reporting requirements. Most of these types of entities are already subject to extensive reporting requirements with the government, including banks, insurance companies, money service businesses, investment companies, tax-exempt entities, and securities reporting issuers. An entity that qualifies as a “large operating company” is also exempt. A large operating company is defined as one that (i) employs more than 20 full-time U.S. employees, (ii) filed a federal U.S. income tax return for the prior year showing more than $5 million of revenue, and (iii) operates in physical location in the U.S.
What must reporting companies disclose to FinCEN?
The report required by the CTA seeks information about the reporting company, including its full legal name, any trade or dba name, current U.S. address, jurisdiction of formation, and Tax Reporting information like EIN/TIN or SSN. Click here to access the FinCen released form to File the Beneficial Ownership Information Report (BOIR).
Additionally, for each beneficial owner, the reporting company must provide that person’s full legal name, date of birth, current address, a unique identifying number, and an image of an identifying document. An identifying document includes a state issued driver’s license or valid passport. Finally, for entities created on or after January 1, 2024, the report must also include this information about a reporting company’s company applicant. The term company applicant is any individual who directly filed (or was primarily responsible for directing or controlling the filing of) the application to form the reporting company under state law. Each reporting company must have at least one company applicant and at most two.
Who are beneficial owners?
The term beneficial owner is defined to include an individual who, directly or indirectly, either (1) exercises substantial control over an entity, or (2) owns or controls twenty-five percent (25%) or more of the ownership interests of an entity.
An ownership interest is generally an arrangement that establishes ownership rights in the reporting company. Examples of ownership interests include shares of equity, stock, voting rights, or any other mechanism used to establish ownership.
An individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company. Based on these definitions and inclusion, an entity’s President, CEO, CFO, COO, or other similar positions could be qualifying roles. Notably, an attorney who holds the position of general counsel in a reporting company would also qualify as a beneficial owner.
A reporting company can have multiple beneficial owners, and FinCEN expects each reporting company to have at least one beneficial owner.
Who has access to the data gathered from these reports?
FinCEN will store the data in a secure, non-public database. FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will also have limited regulated access to this information.
How is the report prepared and filed?
Starting on January 1, 2024, reports must be filed electronically using FinCEN’s secure filing system. There is no filing fee. You can prepare the form via PDF and then upload it to the FinCEN system, or process it directly online. The reporting company is not required to obtain a FinCEN identifier in order to file the report.
The Corporate Transparency Act represents a significant step forward in the United States’ efforts to combat financial crimes and promote corporate transparency. While the new reporting requirements may pose challenges for some business owners, the overall impact is expected to be positive, fostering a more accountable and transparent business environment. As the implementation of the CTA unfolds, it will be crucial for business owners to stay informed, adapt their practices to comply with the new regulations, and contribute to a more secure and transparent financial landscape. Non-compliance with the reporting requirements can result in civil and criminal penalties. Business owners must ensure that they understand the obligations imposed by the CTA and take the necessary steps to comply with the reporting requirements. Please contact our office today so that we can assist you in navigating these new compliance requirements.
By: Danielle Dudai, Esq.
Published: January 4, 2024
Danielle is a Partner in FELPA’s Fort Lauderdale office. Danielle Dudai is a seasoned attorney specializing in corporate and partnership law, business transactions, and blockchain and cryptocurrency compliance. As outside general counsel to numerous small and mid-sized businesses in Florida and Texas, she draws on over a decade of litigation and transactional experience. Recognized for her expertise, Danielle has been selected as a Florida Rising Star by Super Lawyers and honored in the Top 40 Under 40 by the Broward County Bar Association, showcasing her prowess in business and corporate litigation. Additionally, she serves as a public arbitrator with FINRA.
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