by Carolyn A. Young, Esq.
The deadline to comply with new reporting requirements under the Corporate Transparency Act (CTA) is quickly approaching. Under the CTA, most business entities are required to file a Beneficial Ownership Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network on or before December 31, 2024.
What is the Corporate Transparency Act?
The CTA is a new federal law that went into effect on January 1, 2024, and requires most business entities to file a report containing information about the company and its beneficial owners with the U.S. government. Specifically, under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report provides details that identify individuals who are associated with the reporting company.
The CTA was enacted in 2021 for the purpose of detecting, preventing, and punishing terrorism, money laundering, and other illicit activity carried out through business entities. It is aimed at finding and preventing bad actors who would funnel money through cover businesses, assets, and properties.
Under the CTA, any entity that fails to file a required report may be subject to civil and/or criminal penalties. So, everyone with an ownership interest in a private corporation, an LLC, or other business entity needs to determine whether they have to comply with the CTA’s reporting requirements.
What Information Must be Included in a BOI Report and When is the Deadline to Submit?
Entities existing before January 1, 2024 have one year to file a BOI Report with FinCEN. Thus, BOI Reports must be filed on or before December 31, 2024. Entities incorporated or organized after January 1, 2024, have 90 days to submit a BOI Report with FinCEN. As such, if you incorporated or organized a new business entity this year, you already may have missed the reporting deadline.
For each beneficial owner of the company, the BOI Report must include the individual’s legal name, birthday, home address; an identifying number from a driver’s license, state ID, or passport; and an image of the document that the identifying number is from.
If any of the information reported about the company or any of its beneficial owners change, or if there is a change in the beneficial owners, an updated report has to be filed with FinCEN within 30 days of the change. If there was an inaccurate statement in the BOI report filed for your company, a corrected report has to be filed within 30 days of when you become aware of, or should have become aware of, the inaccuracy.
What Entities are Subject to the CTA Reporting Requirements?
Determining whether the CTA applies to an entity can be a complicated analysis. For example, there are 23 exemptions to the reporting requirements. However, unlike other federal laws that generally exempt smaller entities (e.g., the Family Medical Leave Act), the CTA is aimed at collecting information about smaller companies and business entities. As such, the exemptions are geared toward larger entities and entities that are regulated in other ways, including banks, insurance companies, credit unions, and publicly traded entities.
Unless one of the exemptions applies, the CTA requires reporting for any entity created by filing a document with the Secretary of State or a similar office. This includes properties that have been set up as an LLC or other business entity, and it can include some trusts as well (NOTE: a Trust CAN be a beneficial interest holder of a business, which means the Grantor, Trustee, and/or beneficiary may need to be disclosed in a CTA filing). Ultimately, any entity that was created by filing a document with the Secretary of State would be required to submit a report under the CTA (a trust does not typically file documents with the Secretary of State as part of its creation). Entities that have filed with a court for purposes of jurisdiction or registered with a state for some other reason but have not filed creation documents with the Secretary of State would most likely not need to report.
For more information about which entities are “reporting companies” under the CTA, and the 23 exemptions, visit: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf, or contact Carolyn A. Young of Michelson, Kane, P.C. at cyoung@mkrb.com