The Corporate Transparency Act (CTA) is an important legislative change that impacts the operations of millions of businesses in the United States.
The CTA (signed into law on January 1, 2021) expanded anti-money laundering laws and created new reporting requirements (effective January 1, 2024) for certain companies doing business in the U.S. Most small businesses are now required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity. Failure to comply with the CTA can result in a $591-per-day penalty (up to $10,289) and up to two years in prison.
Who Must File
Both domestic and foreign reporting companies are required to file reports with FinCEN. A company is considered a reporting company if a document was filed with the secretary of state (SOS) or similar office to create or register the entity. This includes corporations, LLCs, limited partnerships, and other entities formed through the SOS or similar office.
There are 23 exemptions to the reporting requirements under the CTA, many of which apply to companies that belong to highly regulated industries, including public companies, banks, insurance companies, broker-dealers and investment advisors. Of particular interest to you may be the exemption for a large operating company, which is any entity with (a) more than 20 full-time U.S. employees, (b) an operating presence at a physical office within the U.S., and (c) more than $5 million of U.S.-sourced gross receipts based on its prior year federal income tax return.
What Information Must Be Provided
Reporting companies are required to report beneficial ownership information (BOI) on their beneficial owners and, for entities formed on or after January 1, 2024, their company applicants. BOI includes an individual’s legal name, date of birth, street address, an identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and an image of the identification document.
Beneficial Owners
Beneficial owners are comprised of two groups of individuals: (1) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; and (2) any individual who exercises substantial control over the reporting company, including senior officers (president, CEO, CFO, COO, general counsel and any other office who performs a similar function) and individuals with the authority to appoint or remove senior officers and board members. There is no requirement that individuals who exercise substantial control have actual ownership in the company to be considered a beneficial owner for reporting purposes.
Company Applicants
A company applicant includes both the person who actually files the document that creates or registers the reporting company and the person who is primarily responsible for directing or controlling such filing. This includes an attorney, paralegal or other advisor who forms the entity on behalf of a client. Only companies formed or registered after 2023 are required to report their company applicants.
FinCEN Identifiers
Individuals and reporting companies can request a FinCEN Identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique number assigned by FinCEN which is obtained by submitting the same information that is required of a beneficial owner or reporting company. A FinCEN ID may be useful for individuals who prefer to send their personal information directly to FinCEN rather than through a reporting company, or for individuals who may be required to supply information as a beneficial owner or company applicant for multiple reporting companies.
Important Filing Dates
Reporting companies formed or registered prior to January 1, 2024 are required to submit their initial report by January 1, 2025. For reporting companies formed or registered in 2024, the initial report is due 90 days after the entity’s formation or registration. For reporting companies formed or registered after 2024, the initial report is due 30 days after the entity’s formation or registration. If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change.
How Can Nemphos Braue Help?
Attorneys at Nemphos Braue can help you determine if your company is subject to the reporting requirements of the CTA and, if so, the identity of your company’s beneficial owners and company applicants. We can also complete and submit the BOI report to FinCEN on your behalf. In order to avoid the need for us to receive and store the BOI of beneficial owners, we strongly encourage all beneficial owners to obtain a FinCEN ID, which we can then use to submit the BOI reports.
We understand that these regulatory changes, which are still evolving, can raise questions or concerns. Please reach out to us should you require any further clarification on this matter. Our team is pleased to assist and provide guidance should you have any doubts regarding how the CTA might affect your operations.
FinCEN also has a Small Entity Compliance Guide and frequently asked questions (FAQs), which are regularly updated, to help guide businesses through the reporting requirements.
Contact us if you have questions or wish to speak with one of our attorneys to see how they can assist you regarding the Corporate Transparency Act.
