The Corporate Transparency Act (CTA) became effective on January 1, 2024. As an anti-corruption measure and with the intention of preventing illicit financial activities, the CTA requires certain business entities, in the absence of an exemption, to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. In short, the CTA requires transparency from companies regarding who ultimately owns and/or controls the company.
There are three questions that every business should ask with respect to the CTA:
1. Does the CTA apply to my company?
Under the CTA, companies are required to report BOI if they meet the definition of a “reporting company” and do not qualify for an exemption. Domestic reporting companies generally include any corporation, limited liability company (LLC), or other similar “company created by filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.” There are 23 exemptions for specific types of entities which do not need to report BOI, including insurance companies, tax-exempt entities and large operating companies. To view the entire list of entities exempt from the reporting requirements of the CTA, please see pages 4-14 of FinCEN’s Small Entity Compliance Guide.
Many trust entities or general partnerships are not created by filing a document with a governmental office. Such entities, in general (and so check with your counsel), are not a “reporting company.” However, information about that trust or general partnership would need to be reported if that trust or general partnership is a BOI of a “reporting company.”
2. If the CTA does apply, what information must be reported and to whom?
All BOI reports must be filed electronically through FinCEN’s filing system, which FinCEN states is a “secure filing system.” The BOI report must include the identification of all “beneficial owners,” defined as any individuals who, directly or indirectly, either 1) exercise substantial control over a reporting company or 2) own or control at least 25% of the ownership interests of a reporting company. A reporting company could have multiple beneficial owners, and there is no maximum number of beneficial owners who must be reported. Exercising “substantial control” over a reporting company means the individual either 1) is a senior officer, 2) has authority to appoint or remove certain officers or a majority of directors of the reporting company; 3) is an important decision-maker; or 4) has any other form of substantial control over the reporting company. For any individuals who own or control at least 25 percent of the ownership interests of the company, such interests could mean equity, stock, voting rights, capital or profit interest, convertible instruments, options, etc. Please see pages 17-18 of FinCEN’s Small Entity Compliance Guide for more guidance regarding substantial control and ownership interests. Identification of the reporting company’s beneficial owners to FinCEN will include the individual’s 1) full legal name; 2) date of birth; 3) current address; and 4) a unique identifying number, such as a U.S. passport or driver’s license.
3. What is the deadline for complying with the CTA?
The deadline for submission of a reporting company’s initial BOI is as follows:
- For companies already existing prior to January 1, 2024, the initial BOI must be reported to FinCEN by January 1, 2025.
- For companies created or registered to do business in the U.S. between January 1, 2024, and January 1, 2025, the initial BOI is due within 90 calendar days “after receiving actual or public notice that the company’s creation or registration is effective.”
- For companies created or registered after January 1, 2025, the initial BOI is due within 30 calendar days “from actual or public notice that its creation or registration is effective.”
Companies should act now to ensure compliance with the CTA. The CTA imposes both civil and criminal penalties for violations. Civil penalties for not filing or for certain other violations are up to $500 per day. Criminal penalties include, for reporting violations, up to $10,000 in fines and up to two years in jail (and for some violations up to $250,000 in fines and up to five years in jail). That said, there are currently constitutional and congressional challenges to the CTA, which will be discussed in a future article.
In addition to FinCEN’s Small Business Compliance Guide, FinCEN’s FAQ page can also further serve to answer any outstanding questions with respect to the Beneficial Ownership Information Reporting Rule as well as the Beneficial Ownership Information Access and Safeguards Rule.
The above is only education information and is not legal advice. Legal advice should be sought from your counsel. No attorney-client relationship arises from your receipt or use of this information.
Ray Areaux
Chair IP Practice Group and Privacy Practice
Carver, Darden, Koretzky, Tessier, Finn, Blossman & Areaux, LLC
504.585.3803
areaux@carverdarden.com
https://www.carverdarden.com/attorneys/areaux-raymond-g/
Rebecca Areaux
Associate
Carver, Darden, Koretzky, Tessier, Finn, Blossman & Areaux, LLC
504.207.3909
rareaux@carverdarden.com
https://www.carverdarden.com/attorneys/rebecca_areaux