December 29, 2023
There is a new regulation under the federal Corporate Transparency Act (CTA) that, for the first time, will require disclosure of information about all corporations, limited liability companies and limited partnerships (unless exempt), as well as personal information about their beneficial owners and the persons who form those entities. This requirement is effective on January 1, 2024, for all such entities unless otherwise exempt by the regulation.
HunterMaclean can assist you in determining which of your entities are subject to this new regulation and which may be exempt. We can also assist you in making the necessary filings when required. Please contact one of your primary HunterMaclean attorneys, and that attorney can connect you to the appropriate Firm attorneys to assist you. For general questions about the CTA, contact us at firstname.lastname@example.org.
Set forth below, in question and answer format, is a summary of the CTA regulation, the types of entities that are exempt, and the filing requirements. Further details and guides and can be found at FinCEN’s website, including the pages on Beneficial Ownership Information and Small Business Resources.
1. What is the CTA?
The CTA is a component of the Anti-Money Laundering Act of 2020. It was enacted to prevent money laundering, terrorist financing, and other illicit activities. The CTA is the most impactful piece of federal legislation affecting businesses since the U.S. Securities Laws from the 1930s.
2. When does the CTA take effect?
The CTA takes effect on January 1, 2024.
3. In a nutshell, what is required by the CTA?
The CTA requires businesses (mostly smaller, unregulated businesses) to disclose certain information to the federal government regarding the business and its owners. The CTA will apply to many businesses. It is estimated that 32.6 million entities will have to comply with the CTA in 2024.
4. How is the information disclosed?
Information will be disclosed on a report called the Beneficial Ownership Information (BOI) report. The BOI report lays out in personal detail who owns a business (i.e., this report will contain personal identifying information about a company’s beneficial owners). Entities that are required to file a BOI report are called “reporting companies.”
5. Where and how is the BOI report filed?
The BOI report is filed with FinCEN—the U.S. Department of Treasury’s Financial Crimes Enforcement Network. This is an electronic reporting system referred to as “BOSS.”
6. Does my business need to file a BOI report?
The requirement is far-reaching, and it’s not always clear which entity must file. In general, all corporations and limited liability companies formed in the United States will have to file a BOI report, unless they qualify for an exemption. Even though not specifically mentioned in the CTA, it is likely that all limited partnerships and limited liability partnerships formed in the United States will have to file a BOI report, unless they qualify for an exemption.
7. What are the exemptions?
There are 23 categories of entities that are exempt. Most are for entities that are already subject to close federal or state regulation and thus already must disclose their beneficial ownership information to the government. Examples include publicly traded companies and other entities that file reports under the Securities Exchange Act; financial institutions (banks, credit unions); public accounting firms; insurance companies; tax-exempt entities, including 501(c) nonprofits; and subsidiaries that are controlled or wholly owned, directly or indirectly, by exempt entities.
8. Is there an exemption for large companies?
Yes, there is an exemption for so-called “large operating companies.” Those are companies that (1) employ more than 20 full-time employees in the United States, (2) operate at a physical office (owned or leased) in the United States, and (3) have filed a federal tax return for the previous year reporting gross receipts or sales of more than $5 million.
9. Is there an exemption for entities that are not active?
Inactive entities (e.g., those listed as “inactive” with the Secretary of State of the state of formation) that were formed prior to January 1, 2020, are not required to file a BOI report.
10. Who must provide information on the BOI report?
“Beneficial owners” must provide information.
A “beneficial owner” is an individual who, directly or indirectly, either (1) exercises substantial control over a reporting company or (2) owns or controls at least 25% of the ownership interests of a reporting company. Substantial control can be exercised by an individual who is a senior officer, who has authority to appoint or remove a senior officer, or who can direct or make substantial decisions over important matters.
Beneficial ownership includes direct and indirect interests and joint ownership of any undivided interests. If an entity is owned by a trust, the beneficial owner could be the Grantor or Settlor of the trust who has a right to revoke the trust or withdraw assets, the Trustee or person holding authority to dispose of trust assets, a sole beneficiary who is the recipient of income and principal, or a beneficiary who has the right to demand distribution or withdraw substantially all assets from the trust.
There are limited exclusions to the definition of beneficial owner, such as minor children, non-senior employees, and contingent beneficiaries of a trust.
11. What information is required on the BOI report?
Reporting companies must submit the following information:
|Identifying information on the reporting company
|Identifying information on the beneficial owners
|• Legal name, trade name, and “DBA”
• U.S. street address for principal place of business
• Address for principal place of business
• Jurisdiction in which it was formed or first registered
• Tax ID number
|• Legal name
• Date of birth
• Current residential street address
• ID number (passport, driver’s license, etc.)
• Image of document with ID
12. When does my business need to file (if filing is required)?
For entities formed prior to January 1, 2024, reports must be filed no later than January 1, 2025. Entities formed on or after January 1, 2024, should be prepared to file the report upon formation of the entity; however, the deadline for filing is 90 days after the date of formation.
13. Is this an ongoing reporting requirement?
Following the initial report, if there are any corrections or changes of ownership, a new report must be filed within 30 days of the correction or change. Otherwise, there is no ongoing filing requirement. Some changes that would require a new filing include a change of address, change in senior management, or change in ownership.
14. To whom can FinCEN disclose the information?
FinCEN can disclose the information only to authorized government authorities and financial institutions in certain circumstances.
15. Are there penalties for failing to report?
Yes. Penalties include civil penalties of up to $500 per day as the violation continues. They also include criminal penalties in the form of fines up to $10,000, imprisonment of up to two years, or both.
The information in this fact sheet should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only and no attorney-client relationship is formed by this communication. This information reflects the status of the CTA as of December 29, 2023. To obtain more information, please contact Louann Bronstein at email@example.com or Tom Cullen at firstname.lastname@example.org.
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