The Corporate Transparency Act (“CTA”) became law effective January 1, 2021 when Congress overrode President Trump’s veto. The purpose of the CTA is to eliminate money laundering and other illegal criminal and terrorist activities that are often conducted through anonymous shell companies. Under the CTA, business entities will be required to report certain information to the Financial Crimes Enforcement Network (“FinCEN”) of the Department of Treasury. Said information will not be publicly available but may be distributed in a limited number of instances.
Who is subject to the CTA and who is exempt?
FinCEN has adopted the Beneficial Ownership Information Reporting Rule (the “Reporting Rule”) by virtue of the authority granted to it under the CTA. According to the Reporting Rule, a “reporting company” is subject to the requirement of the CTA. Generally, a reporting company falls into two categories:
While a company may be considered a domestic reporting company or foreign reporting company at first glance, a company may be exempted from the CTA’s requirements if the company falls under any of the twenty-three (23) exemptions set forth in the Reporting Rule. Example of exemptions include, but are not limited to, certain tax-exempt entities, inactive entities, certain large operating companies, insurance companies, banks, and credit unions.
In almost all cases, a for-profit entity, such as a medical practice or a practice providing other professionally licensed services, will be considered a reporting company that is subject to the CTA reporting requirements. Not-for-profit entities will be considered exempt from the CTA reporting requirements if they meet any of the following requirements:
What is required under the CTA?
Reporting companies are required to file beneficial ownership information (“BOI”) reports with FinCEN. These BOI reports shall include the following:
What are beneficial owners and company applicants?
A beneficial owner is any individual that:
Even if an individual meets the above requirements, there are five (5) exemptions including, but not limited to, if the individual is a minor or an agent acting on behalf of a beneficial owner. A reporting company will have at least one (1) beneficial owner, may have multiple beneficial owners and every beneficial owner must be included in the BOI report.
A company applicant must be included in the BOI reports filed by domestic and foreign reporting companies that are created on or after January 1, 2024. Company applicants fall into two categories:
What specific information is required for the filing?
For the reporting company itself,
For each beneficial owner or company applicant,
• A U.S. passport
• A State issued driver's license
• An identification document issued by a state, local government or tribe
• If a beneficial owner has none of the above, a foreign passport; and
5. An image of the document from which the unique identifying number came from.
Notwithstanding the above, a beneficial owner or company applicant may provide their respective information directly to FinCEN and obtain a “FinCEN Identifier,” which will be a unique identify number. Reporting companies can these use these FinCEN Identifiers in lieu of providing the above-required information for beneficial owners and company applicants. This is beneficial for a few reasons: (1) filing BOI reports will be faster and more streamlined; (2) it is easier for beneficial owners and company applicants of multiple reporting companies; and (3) it prevents reporting companies access to a company applicant’s personal information.
When must BOI reports be filed?
Domestic and foreign reporting companies created before January 1, 2024 must file a BOI report by January 1, 2025.
Domestic and foreign reporting companies created on or after January 1, 2024 must file a BOI report within thirty (30) days of receiving actual or public notice that the creation or registration of the reporting company is effective.
Penalties for not filing
The willful failure to file a BOI report or to report false, fraudulent or incomplete beneficial ownership information may result in criminal and civil penalties such as:
If a reporting company discovers that it reported inaccurate or incomplete information, there is a ninety (90) day safe harbor from the date of the original deadline to provide corrected information.
Conclusion
This is a broad overview of the CTA and Reporting Rule requirements. More detailed descriptions, exemptions, and requirements are set forth in the CTA and the Reporting Rule.
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