Oct 14, 2024
The Corporate Transparency Act (“CTA“) took effect on January 1, 2024, imposing new beneficial ownership reporting requirements for entities within its scope. Many companies organized in the United States, as well as certain foreign companies registered to do business in the U.S., are now required to report certain information about their beneficial owners to the United States Treasury’s Financial Crimes Enforcement Network (“FinCEN“). For those companies that are a “reporting company” under the CTA, there are 23 exemptions from having to comply with its reporting requirements. If a company does not qualify for one of these exemptions, it will have specific deadlines to file what is known as a “BOI Report” or risk civil – and potentially even criminal – penalties. January 1, 2025 is the filing deadline for entities formed before January 1, 2024. Many have taken a “wait and see” approach to the year-end filing deadline given the constitutional and other legal challenges the CTA has faced this year, as well as the developing regulatory guidelines. However, the deadline is now looming and compliance remains obligatory. It is important to act now. In this alert, we outline the basic reporting requirements of the CTA in an effort to help your company better understand and, if necessary, meet its compliance obligations.
First Question: Is my company a “reporting company” under the CTA?
Reporting companies under the CTA include both domestic and foreign companies.
- A domestic “reporting company” is any corporation, partnership, LLC or other entity that is created by the filing of a document with a secretary of state or any similar office under the law of any state or Indian tribe in the US, including any homeowners association.[i]
- A foreign “reporting company” is any corporation, partnership, LLC, or other entity formed under the law of a foreign jurisdiction that is registered to do business in any state or tribal jurisdiction.
Second Question (if yes to above): Does my “reporting company” qualify for one of the 23 exemptions?
The CTA includes 23 categories of entities that are specifically exempt from the reporting requirements.[ii] However, for the typical private operating company, very few exemptions are available. The two exemptions that are most likely to apply to your company are (1) the exemption for “Large Operating Companies” (see requirements below) and (2) the exemption for subsidiaries that are 100% owned or controlled by one or more exempt entities that qualify for the Large Operating Company exemption or certain other exemptions. Note that an exempt entity is not required to make any filing under the CTA to affirmatively claim an exemption.
Is my reporting company a “Large Operating Company”?
An entity will qualify for the Large Operating Company exemption if ALL THREE of the following criteria apply:
(1) Employs more than 20 full-time employees in the United States (however, consolidation of the employee count across multiple entities is not permitted);
(2) Has a physical office within the United States where it regularly conducts its business; and
(3) Filed a federal tax return or information return in the United States for the prior year indicating more than $5,000,000 in gross receipts or sales (net of returns and allowances).
When is my reporting company’s deadline for filing a BOI Report?
- Entities formed or registered before January 1, 2024 have until January 1, 2025 to file their initial reports.
- Entities formed or registered on or after January 1, 2024, but before January 1, 2025, must file within 90 days of formation or registration.
- Entities formed or registered on or after January 1, 2025 must file within 30 days of formation or registration.
- Any changes to reported information must be reported to FinCEN within 30 calendar days of when the relevant change occurred.
What information needs to be reported in my BOI Report?
A reporting company must disclose certain information about the company itself, its “Beneficial Owners” (see “Who is a Beneficial Owner” below) and, for companies formed on or after January 1, 2024, a maximum of two “Company Applicants” (see “Who is a Company Applicant” below).
Information required to be reported for a reporting company
- Legal name and any trade or “doing business as” (d/b/a) name
- Principal place of business address
- State, tribal or foreign jurisdiction of formation
- For foreign companies only, state or tribal jurisdiction of first registration in U.S.
- Tax ID number
Information required to be reported for Beneficial Owners and Company Applicants:
- FinCen Identifier[iii] OR
- The following personal information:
- Full legal name
- Date of birth
- Current residential (or business address for Company Applicants who form or register a company in the course of their business)
- ID number (passport, driver’s license, or state ID)
- Photo ID
Who is considered a “Beneficial Owner” under the CTA?
Individuals who either: (i) directly or indirectly exercise substantial control over a reporting company; or (ii) own/control at least 25% of the reporting company’s ownership interests.
- Substantial Control. An individual is deemed to have “substantial control” over a reporting company if he or she: (1) serves as a senior officer; (2) has the authority to appoint or remove certain officers or a majority of directors; (3) directs, determines or has substantial influence over important decisions, and (4) has any other form of substantial control. For these purposes, FinCEN’s compliance guide suggests that a person who is an important decision-maker is anyone who has the authority to make key decisions about the company’s business, finances or structure (such as the nature, scope and attributes of the business, incurrence of significant debt, issuance of equity, reorganization, dissolution or merger). Note that corporate secretaries and treasurers do not fall within the definition of “senior officer” (although such individuals may still be considered to have substantial control over the reporting company if they are otherwise an important decision maker).
- Ownership Interests. Ownership interests include any equity interest and nearly all other instruments used to establish ownership rights in the reporting company (such as convertible interests, options, and profits interests).
Who is a “Company Applicant”?
Individuals (up to a maximum of two) who are responsible for filing formation or registration documents for a reporting company formed on or after January 1, 2024. Note: If an attorney or paralegal from Jackson Tidus helped you form your entity in 2024, that individual is a “Company Applicant” and will provide you with the information you need to complete your filing.
Where do I file a BOI Report?
Reports must be submitted electronically to FinCEN via an online interface. The FinCEN e-filing system can be accessed by going to https://boiefiling.fincen.gov, and then selecting “File Your Report Now.” Instructions and other guidance on how to complete the BOI Report form are available at www.fincen.gov/boi. In addition, please do not hesitate to contact us for assistance with your filing. Note that there is no fee for submitting a BOI Report. Once filed, the BOI Report will be available on a non-public database maintained by FinCEN, and must be updated with any changes throughout the life of the company.
What changes in the company need to be reported in an updated BOI Report?
There is no annual reporting requirement under the CTA. However, a reporting company has 30 days to update and correct information in a BOI Report when: (1) there are any changes to its Beneficial Owners (e.g. change in ownership or in the individual serving as a corporate officer) or (2) there are any changes in the information previously supplied about the company or its Beneficial Owners (e.g. change of address or name). Changes to information related to a Company Applicant do not need to be reported.
What if I do not comply with the CTA requirements?
Willful failure to comply with the CTA requirements may lead to significant penalties, including civil penalties of $500 per day and criminal penalties of up to $10,000 and imprisonment of up to two years.
Compliance Tips and other ways Jackson Tidus can help:
- FinCEN has created a toolkit offering resources and information to help educate companies about the reporting requirements, which includes a list of answers to Frequently Asked Questions. The toolkit can be accessed at https://www.fincen.gov/boi/toolkit.
- Reporting companies should be familiar with the beneficial ownership information that has already been provided to banks and other lending institutions to ensure consistency with what is being reported to FinCEN.
- Reporting companies should consider adding representations and/or covenants to their governance documents (e.g. LLC agreements, shareholder agreements and CC&Rs) and/or financing documents so that the required information for each Beneficial Owner is provided to the reporting company in order to file the BOI Report.
If you have questions about the CTA or need help with BOI filings, changes to your governance documents or other guidance or assistance, please do not hesitate to contact Jackson Tidus. It is always our pleasure to be of service.
Elizabeth T. Hall, Esq.
phone: 949-851-7466
email: ehall@jacksontidus.law
[i] On September 10, 2024, the Community Associations Institute (“CAI”) filed a lawsuit against the U.S. Department of the Treasury, Treasury Secretary Janet Yellen, and the Director of FinCEN challenging the application of the CTA to community associations. The CAI also sought a preliminary injunction to halt enforcement of the Act against community associations while the case is pending. A hearing on the matter was held on October 11, 2024 and the Court’s ruling is anticipated shortly.
[ii] The CTA exempts 23 specific types of entities from the obligation to submit a BOI Report to FinCEN:
(1) Securities reporting issuers
(2) Governmental authorities
(3) Banks
(4) Credit unions
(5) Depository institution holding companies
(6) Money services businesses
(7) Brokers or dealers in securities
(8) Securities exchange or clearing agencies
(9) Other Exchange Act registered entities
(10) Investment company or investment advisers
(11) Venture capital fund advisers
(12) Insurance companies
(13) State-licensed insurance producers
(14) Commodity Exchange Act registered entities
(15) Accounting firms
(16) Public utilities
(17) Financial market utilities
(18) Pooled investment vehicles
(19) Tax-exempt entities
(20) Entity assisting a tax-exempt entity
(21) Large Operating Companies
(22) Subsidiaries of certain exempt entities
(23) Inactive entities
[iii] Beneficial Owners and Company Applicants may apply for a unique identifying number from FinCEN which may then be provided to the reporting company to be included in the BOI Report in lieu of the personal information otherwise required. The form to apply for a FinCEN identifier is available at https://fincenid.fincen.gov/landing.
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