New Reporting Requirements Under The Corporate Transparency Act

Categories:

By Robert R. Boeche, Partner; Robert D. Conca, Partner; and Eden Elkayam, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Tuesday, March 19, 2024.

Beginning January 2024, several new laws began to take effect, impacting various professionals – specifically those U.S. businesses and entities who file documents with the secretary of state. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) began accepting Beneficial Ownership Information Reports (“BOI report” or “BOIs”) in January in an effort to increase transparency surrounding entity ownership. Those who fail to comply could receive significant penalties – including fines and/or imprisonment.

This law affects every U.S. corporation, limited liability company, limited partnership, and other entity! The reach of this law is very expansive and applies to virtually every business and entity. 

What is the Corporate Transparency Act & Beneficial Ownership Information?

The Corporate Transparency Act (“the Act”) was implemented as federal preventative legislation to monitor and punish actors who seek to fraudulently conceal their entity ownership and operations from Congress, whether for businesses, LLPs, corporations, and the like. [1] The Act requires entities operating in the United States to report specific beneficial information, including information about those who own or control their entities. [2]

Who is Required to Report?

FinCEN requires that all “reporting companies” file BOI reports as long as they do not fall under any exemptions. [3] “Reporting companies” comprise both domestic and foreign entities including corporations, LLCs, or other companies that have filed documents in a U.S. State or Tribal jurisdiction and are registered to do business in the U.S. [4]

Moreover, a beneficial owner of a company includes “any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company,” and there can be multiple beneficial owners for one entity. [5]

FinCEN expects that most entities will be able to submit their own BOIs for their companies, but those who need assistance may consult with professionals such as attorneys or accountants for help with submissions. [6]

What Are Companies Required to Report?

Reports need only to be submitted one time, unless amendments must be made, and must provide the following information about each beneficial owner of a business [7]:

  • Name;
  • Date of birth;
  • Address; and
  • I.D. number and issuer from a non-expired U.S. driver’s license, passport, or other identification document issued by a State, local government, or Indian tribe. If none of these are viable options, submission of a non-expired foreign passport with an image of the document is sufficient. [8]

When Must Companies Report?

Companies required to comply must be aware of the following deadlines to file BOI reports [9]:

(1)    Existing companies: If created or registered to do business in the United States before January 1, 2024, must file initial beneficial ownership report by January 1, 2025. [10]

(2)    Newly created or registered businesses in 2024: If created or registered to do business in the United States on or after January 1, 2024, and before January 1, 2025, companies have 90 calendar days to file after receiving actual OR public notice that registration of their business is effective. [11]
          a. 90 days begins to run from the time the company receives actual notice of effective business registration OR after a secretary of state provides public notice of the business registration, whichever is earlier. [12]

(3)    On or After January 1, 2025: If created or registered on or after January 1, 2025, has 30 calendar days from actual or public notice of effective creation or registration. [13]

There are no filing fees associated with submitting an initial BOI report, or any amendment thereafter.

Who is Exempt From Reporting Requirements?

There is a list of 23 types of entities exempt from The Corporate Transparency Act reporting requirements, some of which include: (1) securities reporting issuers, (2) pooled investment vehicle, (3) broker of dealer in securities, (4) investment company, (5) investment adviser, and 18 others. [14] For a more extensive list, please review page 4 of the FinCEN BOI Compliance Guide.

Penalties for Violating CTA?

Failure to timely comply with the Act, or provide accurate information, can be severe. The ACT divides penalties into three categories: (1) unknowing violation, (2) willful failures, and (3) violations in pursuit or as part of another federally illegal act. Penalties include a $500 daily civil penalty (up to $10,000 per violation) and a possible two-year prison sentence for those that do not provide or update beneficial ownership information with FinCEN. [15]

Please contact us with any questions.

If you have questions about the Corporate Transparency Act, or about other compliance or legal matters, we are here to help. Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors, and businesses. Robert Boeche and Robert D. Conca can be reached in the firm’s San Diego office at (619) 696-9500.

[1] https://www.wolterskluwer.com/en/expert-insights/small-businesses-and-the-corporate-transparency-act#:~:text=The%20CTA%20is%20mainly%20an%20anti-money%20laundering%20law.,of%20terrorism%2C%20tax%20fraud%2C%20and%20other%20illegal%20acts.

[2] https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports.

[3] FinCEN Small Entity Compliance Guide, Beneficial Ownership Information Reporting Requirements, 2 (2023), https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

[4] Id.

[5] Id. at 16.

[6] https://www.fincen.gov/boi-faqs#B_7

[7] https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] See supra note 3 at 42.

[13] Id.

[14] Id. at 4.

[15] Id. at 15.