You might have heard rumblings about it in the news… The Corporate Transparency Act (CTA) was passed by Congress in 2021 and reporting with the Financial Crimes Enforcement Network (FinCEN) begins as of January 1st, 2024!
What does the CTA mean for my business?
Many entities, large or small, will be required to file the obligatory "beneficial ownership information reporting (BOI reporting)" forms with the FinCEN or face significant penalties for late filings or noncompliance. We strongly encourage our clients to become familiar with these requirements and reach out to their legal counsel for assistance, should it be needed. The FinCEN expects that the owners of the reporting companies will be able to submit this form on their own via their website: https://www.fincen.gov/boi (e-filing is the only option). Our firm is not able to work on the actual filing process but we may be able to assist you with understanding some of the business ownership criteria.
The BOI forms will be collecting identification information on individuals who have substantial control of an entity, whether it is a single-member LLC, multi-member LLC, partnership, or a corporation. The FinCEN is collecting this data to share with Federal, State, local and foreign officials to assist in shutting down money laundering, tax fraud and the financing of terrorism. Filing begins on January 1st, 2024 and can be completed within the 2024 calendar year for existing entities, while any new entities opened during 2024 have ninety days to register and file their BOI reports and in 2025 and beyond they will need to file within thirty days of their creation being effective. Once an initial filing has been made, any changes to the entity or the listed individuals (such as an address/ID or ownership status update, or a death), need to be made within thirty days of the of the change. So this submission is an ever-changing report, which needs to be monitored and revisited over time.
Who has to report?
Reporting companies are: (1) corporations, (2) limited liability companies, (3) companies created by filing a document with the secretary of state or a similar office under the law or state/Indian tribe (this can pull some trusts into the reporting requirements). These entities can be both domestic reporting entities which were created in the US or foreign entities which are registered in the US to do business with a sectary of state/similar office. There are 23 exempt types of entities, a listing of which can be found here: https://www.fincen.gov/boi-faqs#C_2
What does the FinCEN collect?
The four pieces of identifying information collected by the FinCEN will be the beneficial owners: name, date of birth, address, and an identification number from an acceptable identification document (an image of the document, such as a driver’s license or passport must be provided). Alternatively, an individual/entity can provide these four pieces of information to the FinCEN directly and then obtain a ‘FinCEN identifier’ number, which can be listed on the BOI report instead of the information, which is advisable if an owner has multiple entities to report on, so the same four items of information don’t need to be submitted with each entity.
All individuals who can exercise substantial control must be disclosed – even if they have no ownership in the entity - which includes the following:
(1) a senior officer,
(2) if the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company,
(3) the individual is an important decision-maker; or
(4) the individual has any other form of substantial control over the reporting company.
So the general recommendation is that if in doubt, please disclose the individual. Additionally, any individual with at least 25% of the ownership interest (whether it is via equity, stock or voting rights; a capital or profit interest, convertible instruments, or options; basically, any instruments to establish ownership) needs to be disclosed. If the ownership is held as community property then both individuals should be counted and listed.
How is the FinCEN ensuring compliance with the reporting?
The willful failure to report complete or submit updated information and the submission of fraudulent information will be met with civil penalties of $500 per day while the violation continues or criminal penalties can be charged, which can reach up to $10,000 and/or two years of imprisonment. Please do not take this reporting requirement lightly. We are encouraging our clients to discuss this filing requirement with their attorney to make sure that they will monitor on behalf of clients.
Additional information can be found directly on the FinCEN website under their FAQ’s: https://www.fincen.gov/boi-faqs and we will send out updated information as more information is released.