ARE YOU READY FOR THE NEW CORPORATE TRANSPARENCY ACT?

The Corporate Transparency Act (the “CTA”) was enacted on June 21, 2021, and became effective on January 1, 2024.  Its purpose is to combat money laundering, tax evasion, and financing terrorism.  It requires certain entities (“Reporting Companies”) and their owners (“Beneficial Owners”) to provide additional information (“Business Ownership Information” or “BOI”) to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”).  Reporting Companies and Beneficial Owners must track changes in beneficial ownership of domestic and foreign business registered entities.  Penalties for failure to do the required filings are $500/day up to $10,000.00 and up to two (2) years of incarceration.

WHO MUST REPORT?

Reporting Companies

The CTA defines a Reporting Company as a legal entity that is organized, incorporated, or registered to do business by a state’s Secretary of State.  A Reporting Company must disclose BOI regarding its owners, officers, and controlling persons with FinCEN.  A Reporting Company is (1) anyone who directly files the document that (i) creates a domestic reporting company, or (ii) registers a foreign entity reporting company; and (2) an individual who is “primarily responsible” for directing or controlling such filings if more than one individual is involved in the filing.

 

All businesses with $5,000,000 or less in gross revenues or employ less than twenty-one (21) full-time employees are deemed to be Reporting Companies.  Any business with more than $5,000,000 in gross revenues and which employs twenty-one (21) or more full-time employees is not a Reporting Company.

 

 Beneficial Owners

A Beneficial Owner is defined by the CTA as any person, who, directly or indirectly, through any contractual relationship:

(1) Exercises “substantial control” over a Reporting Company; or

(2) Owns at least twenty-five percent (25%) of the Reporting Company; or

(3) Controls ownership of at least twenty-five percent (25%) of the Reporting Company.

What is “substantial control?” – If the individual falls into any of the categories below, the individual is exercising substantial control.

1. Senior Officer – The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
2. Appointment or Removal Authority – The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.

• Important Decision-Maker – The individual is an important decision-maker for the Reporting Company. Important decisions include decisions about the company’s business, finances, and structure.

1. Catch-All – The individual has any other form of substantial control over the Reporting Company.

Regarding Trusts, at first glance it would not appear that Trusts could not be classified as a Beneficial Owner.  However, if a Trust owns at least twenty-five percent (25%) of a Reporting Company, it would be deemed a Beneficial Owner.

Company Applicants

A “company applicant” is any individual who directly files the document that creates the domestic Reporting Company or registers the foreign Reporting Company, and the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing.

ARE THERE ANY ENTITIES EXEMPT FROM FILING?

FinCEN has determined that the following twenty-three (23) entities as exempt from filing the BOI:

1. Securities reporting issuer;
2. Governmental authority;
3. Bank;
4. Credit union;
5. Depository institution holding company;
6. Money services business;
7. Broker or dealer in securities;
8. Securities exchange or clearing agency;
9. Other Exchange Act registered entity;
10. Investment company or investment adviser;
11. Venture capital fund adviser;
12. Insurance company;
13. State-licensed insurance producer;
14. Commodity Exchange Act registered entity;
15. Accounting firm;
16. Public utility;
17. Financial market utility;
18. Pooled investment vehicle;
19. Tax-exempt entity;
20. Entity assisting a tax-exempt entity;
21. Large operating company;
22. Subsidiary of certain exempt entities; and
23. Inactive entity

HOW DO YOU COMPLY WITH THE CTA REPORTING REQUIRMENTS?

Existing Companies: Reporting Companies created on or registered before January 1, 2024 must file their initial BOI reports by January 1, 2025.

New Companies: Reporting Companies created or registered on or after January 1, 2024 must file their initial reports:

(1) If created or registered in calendar year 2024, within ninety (90) calendar days; or

(2) If created or registered thereafter, within thirty (30) calendar days,  in each case, of the earlier of the date on which it receives actual notice that its creation has become effective (in the case of domestic Reporting Companies) or it has been registered to do business (in the case of foreign Reporting Companies), or the date on which a secretary of state or similar office first provides public notice.

WHAT INFORMATION MUST BE REPORTED?

BOI reporting consists of:

Reporting Company Information:

• Full Legal Name
• Any trade name or d/b/a name
• Street address of principal place of business in the U.S.
• Jurisdiction of formation (or registration in the U.S., if foreign)
• IRS Taxpayer Identification Number (TIN) or foreign tax ID

Beneficial Owner and Company Applicant Information:

• Full legal name
• Date of birth
• Residential street address
  • In the case of a company applicant who forms companies in the ordinary course of business (e.g., a paralegal or formation agent), the business address of the company applicant should be used instead
• ID number and issuing jurisdiction of a non-expired U.S. passport, U.S. driver’s license, U.S. government-issued ID or, if the individual possesses none of those, a foreign passport

 

• Upload an image of the corresponding government ID

FinCEN Identifier – In place of providing the required Beneficial Owner and Company Applicant Information, individuals and companies can apply for a FinCEN identifier and supply this in their BOI report.  A FinCEN Identifier (also known as a FinCEN ID number) is a unique 12-digit identifying number that the FinCEN issues to individuals or reporting companies.

Obtaining a FinCEN ID number is a fairly simple process, and individuals or companies can acquire one themselves directly with FinCEN at no cost.  Individuals can apply for the FinCEN ID number electronically via their login.gov account.  Reporting companies can request a FinCEN ID when submitting a BOI report by checking a box on the reporting form.

WHEN DO REPORTS NEED TO BE UDPATED?

Any time there is a change in reported BOI, it must be reported to FinCEN within thirty (30) days.  Examples of such changes include, but are not limited to:

• Changes in a Reporting Company names, entities, registrations, d/b/a’s, addresses, domiciles.
• About a Beneficial Owner – name; address; new driver’s license/passport.
• List of Beneficial Owners – new twenty-five percent (25%) owner or existing owner drops below twenty-five percent (25%); death of a beneficial owner; change of senior officers; change of trustee.

Any updates or corrections to Beneficial Ownership Information that was previously filed with FinCEN must be submitted within thirty (30) days.  For updates, the thirty (30) days start from when the relevant change occurs.  For corrections, the thirty (30) days start after you become aware of, or have reason to know of, an inaccuracy in a prior report. has been.

If your company previously qualified for an exemption to the Reporting Company definition but no longer qualifies, you are required to file a report within thirty (30) calendar days of the date on which your company stops qualifying for the exemption.

How to File the Report?

Reporting Companies will have to report electronically through FinCEN’s website: www.FinCEN.gov/boi.  There is no fee for submitting your disclosure report to FinCEN.

• The system will provide the filer with confirmation of receipt once a completed report is filed with FinCEN.
• To register your BOI or to file changes to your BOI you should go to the FinCEN website.

What Are the Penalties for Failure to Report?

A Reporting Company that willfully provides false BOI or who willfully fails to report complete or updated beneficial ownership information to FinCEN, as discussed above, may be fined at the rate of $500 per day up to a maximum of $10,000; and incarceration for up to two (2) years.  However, a safe harbor provision does exist for voluntarily and promptly correcting an inaccurate report within ninety (90) days.

HOW TO GET MORE INFORMATION ON THE CTA?

FinCEN has provided some invaluable resources on its official website (www.fincen.gov/boi), such as a list of FAQs and a simplified Small Entity Compliance Guide.

For further information or questions, please contact Attorney Hillel Goldman or Attorney Geraldine B. Macaisa.