Corporate Transparency Act

New Filing Obligations Under the Corporate Transparency Act

Business owners and executive management need to familiarize themselves with the new Beneficial Ownership Information (BOI) reporting rules under the Corporate Transparency Act (CTA) and appoint a company representative to keep informed of this new and evolving compliance area to avoid fines and penalties due to an inadequate compliance effort.

On January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury began to facilitate a BOI reporting database for Reporting Companies under the CTA.  The stated purpose of BOI reporting is to help the federal government combat money laundering, terrorism financing, and other illicit activities.  The BOI reporting rules require that Reporting Companies timely file with FinCEN and maintain the accuracy of the filing moving forward.

Reporting Companies Obligated to File

A Reporting Company is generally a legal entity that is either created or qualified to do business by a filing with a secretary of state or equivalent office (Secretary of State). Common Reporting Companies include limited liability companies and corporations.

Reporting Companies that were in existence by December 31, 2023, have until January 1, 2025, to complete initial BOI reporting.  However, there is a more immediate impact for Reporting Companies that are formed or qualified to do business on or after January 1, 2024 (New Reporting Companies).  In 2024, New Reporting Companies must file their BOI reporting within ninety (90) days of entity formation or qualification to avoid potential costs of non-compliance.  After 2024, New Reporting Companies will only have thirty (30) days to file their initial BOI reporting.

The BOI information center provides a direct link to the FinCEN filing portal for Reporting Companies.

Filing Exceptions

A complete list of the compliance exemptions is available at the FinCEN BOI information center and also on the CCM CTA Compliance Resource Library webpage.  Generally, organizations that are already subject to significant federal oversight and large operating companies will benefit from one of the BOI reporting exemptions.  Two exemptions that are expected to alleviate the filing obligations for many Reporting Companies are the Large Operating Company and Inactive Company exemptions.

The Large Company Exception

The Large Operating Company Exemption applies to companies with more than 20 full time employees in the United States, a physical office in the U.S., and a filed federal income tax return for the previous year showing more than $5 million in gross sales or receipts within the U.S.

The Inactive Company Exception

The Inactive Company Exemption applies if all of the below apply: (i) the entity existed on or before January 1, 2020; (ii) the entity is not engaged in active business; (iii) the entity has not experienced any change in ownership; (iv) the entity has not sent or received any funds in an amount greater than $1,000 during the preceding twelve-month period; (v) the entity does not otherwise hold assets, including other entity interests; and (vi) the entity is  not owned by a foreign person.

Exceptions May Not Apply to all Reporting Companies of an Organization

Business Owners and executive management should not stop their analysis of BOI reporting if they qualify for the Large Operating Company Exemption and should take care to review all entities that they own or control, to ensure that ancillary entities are also in compliance.  In many cases, the Large Operating Company Exemption will exempt filing for a large operating company, but the exemption may not apply to commonly used real estate holding companies owned by the business owners, separate company divisions, or other small Reporting Companies they may operate, control or invest in.

Personal Information Reported and Updated Timely

Absent an applicable BOI reporting exemption, Reporting Companies will need to report the full legal name, date of birth, current residential address, unique ID number from an acceptable ID document, and an image of that document for: (1) holders of 25% or more of the ownership interests in the Reporting Company, and (2) individuals having substantial control over the Reporting Company.  Substantial Control means: (i) the individual is a senior officer, (ii) the individual has authority to appoint or remove certain officers or a majority of directors of the Reporting Company; (iii) the individual is an important decision-maker; or (iv) the individual has any other form of substantial control over the Reporting Company. Information reported to FinCEN will also need to be updated promptly, within thirty (30) days of any change.

FinCEN Identifier

Business owners and individuals having substantial control over a Reporting Company may want to obtain an optional FinCEN Identifier (FinCEN ID) to simplify reporting and to safeguard the sharing of sensitive personal information with companies that they own or control.  An individual subject to BOI reporting can simply provide the Reporting Company with their FinCEN ID, instead of providing their personal identification records for each Reporting Company they are affiliated with.  The BOI information center provides a direct link to the FinCEN ID application portal.

Company Applicant Reporting

Reporting Companies created or registered on or after January 1, 2024 also need to report the personal information of the individuals who act to organize the Company, referred to as the “Company Applicant.” Each Reporting Company will have to identify at least one (and at most two) Company Applicants. A Company Applicant is the individual who actually files the document with the Secretary of State, or the individual who was primarily responsible for directing or controlling the filing action. Company Applicants must report the same information that is required for 25% owners and those with Substantial Control over a Reporting Company.

Time is of the essence to evaluate whether you own or have Substantial Control over a Reporting Company, whether a reporting  exemption is available; and if not, which members of the organization are subject to BOI reporting rules. Failure to create and maintain an accurate record could result in civil or criminal penalties.

CCM will continue to monitor changes to the BOI reporting requirements under the CTA. For more information, visit the CCM CTA Resource Library at www.ccmlawyer.com.

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