CLIENT ALERT: NAVIGATING THE CORPORATE TRANSPARENCY ACT:WHAT YOU NEED TO KNOW COME JANUARY 1, 2024
OVERVIEW
Starting January 1, 2024, the Corporate Transparency Act (CTA) will require all entities formed or registered to do business in the United States, absent qualifying for an exemption, to furnish a beneficial ownership information (BOI) report containing information about the entity’s “beneficial owners” to the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN). Non-compliance with the CTA’s reporting obligations may result in significant financial penalties. We want our clients to be prepared when the CTA goes into effect. Here’s what you need to know:
WHAT IS THE CORPORATE TRANSPARENCY ACT?
Enacted as part of the Anti-Money Laundering Act of 2020, the CTA requires certain companies, typically smaller and otherwise unregulated companies, to file a BOI report with FinCEN, identifying the company’s “beneficial owners” – those individuals who own and control the company. This information can then be disclosed by FinCEN to certain specified government authorities and financial institutions in an effort to combat money laundering, tax fraud, terrorist funding, and other illicit activities.
Companies required to report this information (the “reporting companies” as the term is used in the CTA) include all entities formed or registered to do business in the United States by the filing of a document with a secretary of state or similar office, such as corporations, LLCs, LLPs, and business trusts. This includes all of our clients which are limited liability companies or corporations in the State of Florida, State of Delaware, or anywhere else in the U.S. or its territories. Entities not created through such state filings may not fall under the scope of the CTA.
WHAT INFORMATION IS REQUIRED?
Reporting companies will be required to report: (i) the entity’s full name, (ii) any trade or d/b/a name, (iii) principal address, (iv) jurisdiction of formation or registration, and (v) Tax ID number.
In addition, the reporting company must file a BOI report listing its beneficial owners and various personal information of the beneficial owners, including trustees and beneficiaries of trusts if the beneficial owner is a trust. A beneficial owner is any individual who, directly or indirectly: (i) exercises substantial control over the reporting company (i.e., any senior officer), (ii) has the ability to make important decisions on behalf of the reporting company, (iii) owns or controls 25% or more of the ownership interests of the reporting company, including of convertible interests irrespective of whether these convertible interests are debt or equity, along with directly held options and warrants, or (iv) acts as an intermediary, custodian or agent on behalf of another, including certain trust arrangements.
The CTA also obligates reporting companies to provide identifying information for the “company applicants” of the reporting company, meaning: (i) the individual who is responsible for filing the formation documents, or (ii) the individual who is responsible for directing the filing of formation documents. Legal counsel can be considered a company applicant if they fall under this category. Reporting companies that existed prior to January 1, 2024 do not need to report company applicants. To make these requirements easier going forward, a FinCEN identifier may be issued to individuals or reporting companies.
WHEN DO WE HAVE TO DO THIS?
If the reporting company was formed before January 1, 2024, it has until January 1, 2025, to submit its initial BOI report.
New entities formed on or after January 1, 2024, must file their initial BOI within 90 calendar days of receiving actual or public notice that its creation or registration is effective.
Reporting companies formed on or after January 1, 2025, must file an initial report within 30 calendar days.
Any entity that was exempt but that no longer meets the criteria for an exemption must file a BOI report within 30 calendar days after the date that it no longer meets the criteria for an exemption.
ARE THERE ANY EXEMPTIONS TO THE REPORTING REQUIREMENTS?
There are 23 specified exemptions. Most are for entities that are already subject to heavy regulation under which their beneficial ownership may already be recorded. If an entity qualifies for an exemption, no further action is necessary. Generally, these exemptions include:
Large operating companies, meaning entities that (i) employ more than 20 full-time employees in the United States, (ii) have an operating presence at a physical office within the United States, and (iii) have filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.
Non-profit 501(c)s and certain tax-exempt entities.
Publicly registered entities.
Subsidiaries that are wholly owned, directly or indirectly, by certain exempt entities.
WHO WILL HAVE ACCESS TO THE REPORTED INFORMATION?
Information reported will not be publicly available. Rather, access to the information is provided in accordance with the CTA to:
Federal agencies engaged in national security, intelligence, or law enforcement activities.
State, local and Tribal law enforcement agencies, with court authorization.
Select foreign law enforcement agencies.
Financial institutions.
U.S. Department of Treasury.
WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?
The CTA imposes both civil and criminal penalties for willfully providing false information, failing to provide complete information, or neglecting to update information. These penalties can amount to up to $10,000.00 in fines and up to two years of imprisonment. Notably, individuals may also be held liable under the CTA if they were responsible for the failure or held a senior position at the time of the failure.
ADDITIONAL INFORMATION
This alert is meant to offer a general overview of the CTA. Tripp Scott, P.A. is prepared with checklists, procedures, and a package to assist its clients in this new reporting requirement. For a more comprehensive understanding of how the CTA may affect your business and what steps you need to take, please contact Michele Mueller at Tripp Scott at corporatefilings@trippscott.com.
