You need to be prepared for the CTA.  The Corporate Transparency Act (CTA) is effective January 1, 2024. It requires privately held entities to report beneficial ownership information (BOI) to the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The reporting requirements are intended to apply broadly and impact small companies, many of whom have never made federal filings other than those with the Internal Revenue Service.  Many larger or otherwise highly regulated entities are exempt from the CTA.

Reporting Companies

Both domestic and foreign entities can be “reporting companies” under the CTA. Domestic “reporting companies” are corporations, limited liability companies (LLCs), or other entities created by filing a document with a Secretary of State (SOS).

The CTA excludes from the reporting company definition 23 categories of entities.  Unfortunately, many of these exemptions may not be applicable to your entity.  Larger operating companies that have at least 20 employees and more than $5 million in gross receipts are exempt.  Additionally, accounting firms, tax-exempt entities, broker/dealers and insurance producers are exempt.

Beneficial Ownership Interest Report

If you are a “reporting company” and you are not exempt, you must disclose information about:

  • The individual beneficial owners and, for entities created or registered on or after January 1, 2024, its company applicants.  A company applicant is an individual who either: directly files the document that creates a domestic reporting company or is primarily responsible for directing or controlling the filing of the relevant document by another, if more than one individual is involved in the filing.
  • The company.

The information that must be disclosed about each individual beneficial owner will be (a) full legal names, (b) date of birth; (c) complete current residential address; (d) a unique identifying number (such as a non-expired US passport or a state driver’s license); and (e) an image of the document with the unique identifying number.

The information that must be disclosed about the company will be (a) company name, (b) complete current business address; (c) state/jurisdiction; and (d) employer identification number.

Your company will have until January 1, 2025 to file your initial BOI report.  If you form an entity after January 1, 2014, you will have 90 days to submit your initial BOI report.  Beginning in January 2025, you will have 30 days to submit your initial BOI report for all new “reporting companies.”  You will have 30 days to report any changes to your BOI report.  Penalties apply for failure to report.

Beneficial Owners

A beneficial owner is any individual who, directly or indirectly, either:

  • Exercises substantial control over the reporting company.
  • Owns or controls 25% or more of the ownership interests of the reporting company.

An individual exercises substantial control over a “reporting company” if the individual does any of the following:

  • Serves as a senior officer of the reporting company (President, CEO, COO, CEO, or anyone other officer regardless of title performing a similar function).
  • Has authority to appoint or remove either: (a) any senior officer; or (b) a majority of the reporting company’s board of directors or similar body.
  • Directs, determines, or has substantial influence over important decisions made by the reporting company.
  • Has any other form of substantial control over the reporting company.

Compliance with the CTA

To comply with the CTA, a “reporting company” must be able to:

  • Determine the individuals who are its beneficial owners.
  • Timely obtain the required personal information of its beneficial owners so the company can meet the CTA reporting deadlines.
  • Be promptly notified of any change in its beneficial owners’ required personal information so the company can timely report the change to FinCEN.

To meet the CTA’s filing deadlines, a “reporting company” needs to be able to promptly:

  • Obtain its beneficial owners’ required personal information.
  • Receive notification of any changes to that personal information.

A “reporting company” must decide how and when it will acquire this information from the appropriate individuals and implement appropriate policies and procedures if necessary.

Conclusion

The BOI reporting requirement has not begun and there will be additional guidance as we move into the new year.  In the interim, please contact us should you have any questions.

Olin M. Lewin | Attorney