Creative Law Network

Updates

The Corporate Transparency Act

The Corporate Transparency Act (“CTA”) took effect January 1, 2024. The purpose of the CTA is to create a national database that will identify the owners and controlling parties of companies in the US as part of the increased effort to combat money-laundering, terrorism, and other financial crimes. The Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the US Treasury Department, is in charge of creating and maintaining the database. The database will not be a public record but will be available to certain government agencies. All reporting companies will be required to file reports with FinCEN disclosing certain information regarding the companies and the identities of the beneficial owners or managers of the companies.

Overview

Most small businesses in the US are required to report to FinCEN. The report must include basic identifying information about the business and its owners and managers. The information must be updated if it changes. There are deadlines for reporting and penalties for not reporting.

The keys to navigating these new reporting requirements are:

  • Whether an entity is a Reporting Company that must report to FinCEN (or whether that entity falls into one of the exceptions to the reporting requirements).

  • Who are the Beneficial Owners and Company Applicants whose information must be reported.

  • When reports are due to FinCEN.

Key CTA Terms

  • Reporting Company includes virtually any entity formed in the United States. However, the CTA creates numerous exceptions such as:

    • Public companies.

    • Larger companies (with a physical US location, > 20 employees, and > $5M in gross receipts/sales).

    • Companies in regulated industries (e.g., financial services, including certain investment companies, fund advisors, and pooled investment vehicles; insurance)

    • Tax-exempt entities.

    • Subsidiaries (e.g., portfolio companies) controlled or wholly owned by an exempt entity (depending on the specific exception utilized).

Entities that fall within one of these exceptions are not required to file CTA reports.

  • Beneficial Owner is defined as any individual who (i) owns 25% or more of a Reporting Company or (ii) exercises “substantial control” over a Reporting Company. Many senior executives, managers, directors, and officers, even if they do not own 25% of the Reporting Company, will be deemed Beneficial Owners under the CTA due to their control over a Reporting Company.

  • Company Applicant is an individual who directly files an entity’s formation documents with a relevant state or tribal authority or is primarily responsible for directing or controlling the filing.

Who will this affect?

The CTA will impact entities across the US and the individuals who own or control those entities.

  • Every corporation, limited liability company, and other legal entity formed in the US needs to determine whether it is a Reporting Company under the CTA or whether it qualifies for an exception.

  • Every entity that is a Reporting Company needs to identify its Beneficial Owners and Company Applicant(s).

  • All Reporting Companies and their Beneficial Owners must be reported to FinCEN.

Who information must be reported?

  • Company information that must be reported includes the company’s name, address, and tax identification number (e.g., EIN).

  • Beneficial Owner information that must be reported includes the individual’s legal name, address, and identification number from their passport, driver’s license, or certain other government-issued identification cards. Each Beneficial Owner must also upload an image of their passport, driver’s license, or other government-issued identification card.

What are the deadlines for CTA compliance?

  • Reporting Companies created before January 1, 2024, must file their initial Beneficial Ownership Information (BOI) report by January 1, 2025. Reporting Companies created before January 1, 2024, are not required to identify their Company Applicants.

  • Reporting Companies formed between January 1, 2024, and December 31, 2024, must file their initial BOI report with FinCEN within 90 days after receiving actual or public notice, whichever is earlier, of their company’s creation or registration.

  • Reporting Companies created on or after January 1, 2025, will have 30 days within which to make the required BOI report filing.

  • Updates: A Reporting Company must file an updated BOI report whenever there is a change in (i) its basic information, (ii) Beneficial Owners, or (iii) status as a Reporting Company (i.e., if the company becomes eligible for an exception). The updated report must be filed no later than 30 days after the change.

What are the potential consequences for non-compliance?

  • A willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information, may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties, including imprisonment of up to two years and/or a fine of up to $10,000.

  • A person may be subject to civil and/or criminal penalties for willfully causing a Reporting Company not to file a required BOI report or to report incomplete or false beneficial ownership information.

How can we help?

As always, Creative Law Network is available to assist with your business needs, including answering any questions you may have about the new CTA. We are ready to assist with the filing of your initial BOI report and any updates. Please contact us so we can help ensure your business is compliant with this new law.

Dave Ratner