Compliance with the Corporate Transparency Act
On January 1, 2024, the Corporate Transparency Act (CTA) took effect. This federal law requires many business entities to report information about their owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department. The CTA’s purpose is to combat financial crimes, including money laundering, terrorism, human and drug trafficking, and tax evasion through the creation of the Beneficial Ownership Secure System (BOSS), a database of information that FinCEN will use to monitor who owns and operates business entities formed or registered to do business in the U.S.
The CTA will impact many corporations, LLCs and other business entities, and the penalties for non-compliance are substantial. The attorneys at Aronberg Goldgehn will assist clients with their CTA compliance efforts.
KEY COMPLIANCE DATESCompanies required to file reports with FinCEN are called “reporting companies.”
Reporting companies formed at any time prior to January 1, 2024, will have until December 31, 2024, to file their initial reports.
A reporting company formed between January 1, 2024 to December 31, 2024, will have 90 days to file its initial report. A reporting company created on or after January 1, 2025, will have 30 days to file its initial beneficial ownership information (BOI) report.
After filing an initial report, a reporting company must file a report within 30 days of any change in its beneficial owners. In addition, if a reporting company meets the criteria for an exemption after filing its initial report, it must file a report, notifying FinCEN of the change, within 30 days.
WHO MUST REPORT?
Reporting companies can be domestic or foreign business entities. Reporting companies must file BOI reports with FinCEN.
A domestic reporting company is any corporation, limited liability company, or any other entity created by filing a document with a secretary of state or similar state office. FinCEN expects this will include a variety of non-corporate entities such as limited liability partnerships, limited liability limited partnerships, business trusts, or limited partnerships.
A foreign reporting company is any corporation, limited liability company, or any other entity formed under the law of a foreign country and registered to do business in any state jurisdiction by filing a document with a secretary of state or similar office.
The CTA exempts 23 categories of entities from the definition of “reporting company” and authorizes FinCEN to create additional exemptions. Examples of exempted entities include:
Large operating companies — companies with 20 or more full-time U.S. employees, more than $5 million in U.S.-sourced revenue, and a physical operating presence in the U.S.;
Issuers registered with the Securities and Exchange Commission;
Banks, bank holding companies, savings and loan holding companies, credit unions, financial market utility entities, and money services businesses registered with FinCEN;
Certain pooled investment vehicles;
Tax-exempt entities or certain entities that assist tax-exempt entities; and
Each of the 23 CTA exemptions have detailed definitions and eligibility requirements that must be carefully reviewed.
WHO IS A BENEFICIAL OWNER?Under the FinCEN Rules, “beneficial owners” are defined as “any individual who, directly or indirectly, either exercises substantial control over such reporting company OR owns or controls at least 25 percent of the ownership interests of such report company.”
An individual can exercise substantial control over a reporting company if they serve as a senior officer in the reporting company, have authority over the appointment or removal of senior officers or a majority of the board, have “substantial influence over important decisions” of the reporting company, or have any other form of substantial control over a reporting company.
WHAT INFORMATION IS REPORTED AND IS IT PROTECTED?The CTA requires reporting companies to file a BOI report with FinCEN that provides the name, date of birth, current address, and unique identification number (from a passport or driver’s license, for example) of the company’s “beneficial owners.”
The CTA includes numerous provisions regarding protection of the data submitted to FinCEN in the BOI reports. FinCEN must store the information in a private database not accessible to the public. The information may be used only for law enforcement, national security or intelligence purposes and is not subject to requests under the Freedom of Information Act.
PENALTIES FOR NON-COMPLIANCEA person who willfully violates the CTA may be subject to civil penalties of up to $500 for each day that the violation continues. A person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
The unauthorized disclosure of information collected under the CTA is also subject to a $500-per-day civil penalty but includes a higher criminal penalty of up to $250,000 and/or a higher maximum term of imprisonment of five years. Unauthorized disclosure includes both a disclosure by a government employee and disclosure by a third-party recipient of information under the CTA.
NEXT STEPSWe will work with clients during 2024 and thereafter to comply with the CTA. Compliance with the CTA will require continuous monitoring and attention. Aronberg Goldgehn’s team will assist in the determination of whether a company is a reporting company and with filing of BOI reports.
Please reach out to your Aronberg Goldgehn attorney with any questions regarding the CTA.