The Corporate Transparency Act

The Corporate Transparency Act

In January 2021, Congress enacted the Corporate Transparency Act (the “CTA”) by overriding President Trump’s veto.  The CTA becomes effective January 1, 2024, and will significantly increase reporting requirements for many existing corporations, limited liability companies (“LLCs”), and other entities.  Businesses failing to comply with the CTA will incur significant civil and/or criminal penalties.  It is important for you to consider how these new reporting rules may affect your business and legal entities, or in certain instances your estate plan. 

This memorandum highlights certain CTA requirements which may alter the existing business and estate planning landscape.  However, not all the changes brought on by the CTA are addressed in this memorandum.  Many of the requirements are burdensome, and you should consider how to minimize the CTA’s impact on your business and legal entities.  We recommend that all clients owning interests in closely-held corporations, LLCs, limited partnerships or other legal entities schedule a conference to discuss the potential effect of the CTA.

What does the Corporate Transparency Act require?

The CTA requires any Reporting Company (defined below) to file specific information about the company itself and such company’s “beneficial owners.”  The reporting is via a beneficial ownership information (“BOI”) report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).  Any Reporting Company created on or after January 1, 2024, must file an initial BOI report with FinCEN within ninety (90) days of the company’s formation.  Any Reporting Company formed before January 1, 2024, must file an initial BOI report with FinCEN before January 1, 2025.  After the initial report, there are no annual or quarterly filing requirements unless and until the reported information changes for a Reporting Company.  Once a Reporting Company’s reported information changes, however, such Reporting Company must file amended or updated reports within thirty (30) days of such change. 

What is a Reporting Company?

A “Reporting Company” is any corporation, LLC, limited partnership, or other similar legal entity created by the filing of a document with a secretary of state or any other similar office of any state that does not qualify for an exemption.  Currently, there are twenty-three (23) exemptions to the definition of Reporting Company.  These exemptions fall into three (3) general categories.  The first category consists of companies already subject to significant reporting obligations, such as banks, insurance companies, and registered investment companies and advisors.  The second category consists of many tax-exempt entities.  The third category is for certain “large operating companies” defined as entities that (i) have more than twenty (20) full-time employees, (ii) have an operating presence at a physical location in the United States, and (iii) reported more than $5 million dollars in gross receipts from United States sources on a consolidated basis to the Internal Revenue Service the previous year.

Who qualifies as a Beneficial Owner?

A “beneficial owner” is any person (including an individual, entity, or trust) who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, either (i) exercises substantial control over a Reporting Company, or (ii) owns or controls at least twenty-five percent (25%) of the ownership interests of a Reporting Company.  An individual exercises substantial control over a Reporting Company if such individual has control over the important decisions of the Reporting Company (e.g., any senior officer).

What information needs to be reported to FinCEN?

The BOI report must provide the following information about the Reporting Company:

• Full legal name;
• Any trade or “doing business as” names;
• Complete, current street address of the principal place of business (must be a U.S. address and may not be a P.O. Box, the address of a company formation agent, or other third party);
• Jurisdiction of formation; and
• Employer Identification Number.

The BOI report must also provide the following information about each beneficial owner:

• Full legal name;
• Date of birth;
• Complete, current residential street address; and
• Unique identification number and image of the document from which the unique identifying number was obtained (this requirement may be satisfied by any one of a United States passport, a state driver’s license, an identification document issued by a state, local government, or tribe, or a passport issued by a foreign government).

The CTA provides that the information provided in BOI reports will not be publicly available. 

Generally, such information will be disclosed only (i) to federal and state law enforcement agencies in certain circumstances, and (ii) with the Reporting Company’s consent, to financial institutions (e.g., banks) in connection with certain “know-your-customer” obligations. 

What are the penalties for noncompliance?

Civil and criminal penalties potentially apply for a Reporting Company’s breach of CTA’s reporting requirements.  The (i) willful failure to report complete or updated BOI, or (ii) reporting of false or fraudulent information to FinCEN may result in civil penalties of up to Five Hundred Dollars ($500) per day for each day that the violation continues.  Further, failing to comply or providing false or fraudulent information may subject violators to criminal penalties of up to (a) two (2) years in prison, or (b) Ten Thousand Dollars ($10,000) in fines.  In addition, the senior officers of a Reporting Company may be liable for a Reporting Company’s failure to satisfy the CTA’s reporting requirements.

While immediate action may not be warranted in all cases, we advise you to consult with an attorney concerning the impact of the current federal law on your business or estate plan, as the case may be.  We invite you to call our office and schedule an appointment with one of our attorneys if you have any questions about these recent legislative developments.

Disclaimer:  This memorandum is for informational purposes only and does not, and is not intended to, constitute legal advice.  The receipt of this memorandum does not create an attorney-client relationship.  The topics covered in this memorandum are not comprehensive and should not be substituted for competent legal advice from a licensed attorney.