Are You Prepared for the Corporate Transparency Act? Key Insights and Deadlines
In 2021, Congress passed a new law affecting most businesses called the Corporate Transparency Act (CTA). Unfortunately, the majority of corporations and LLCs are unaware of this new regulation, which could lead to significant penalties as early as January 1, 2025.
The CTA’s purpose is to create business ownership transparency by identifying individuals who have either direct or indirect ownership (beneficial ownership) in a company. The overall goal is to alleviate fraudulent and illegal activities. The Financial Crimes Enforcement Network (FinCEN) began accepting Beneficial Ownership Information Reports (BOIR) through their website in January 2024.
States such as Delaware and Wyoming do not require corporations nor LLC’s to identify the owners of the entities, allowing for anonymity of said individuals. Congress views this as a potential threat to national security, as such secrecy could allow for foreign individuals or companies to acquire land or business interests that could potentially be against the interests of the nation or in violation of our laws.
Note that any information filed with FinCEN through a BOIR is not publicly available and the FinCEN database is private and for government use only. That being said, if you’ve created your entity in a state such as Texas, said information is public record through your filing with the Texas Secretary of State, as Texas requires entities to list all of its owners, regardless of their percentage.
Any reporting entity created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOIR. If you created your entity in 2023 or 1983, you have until December 31, 2024, to file your BOIR.
Entities created or registered in 2024 have 90 days from their registration to file this information, and those created or registered after January 1, 2025, will have only 30 days to file. So, if you create a reporting entity, such as a for-profit corporation, in early December of 2024, you will have until early March of 2025. However, if you create a reporting entity in late January of 2025, you will also have until early March of 2025 to report.
A beneficial owner anyone who directly or indirectly exercises substantial control over or owns or controls at least 25% interest in a business.
To clarify, an individual exercises substantial control over a reporting company if they fall into any of the following categories: a) If the individual is a senior officer; b) if the individual has authority to appoint or remove certain officers or a majority of directors; c) if the individual is an important decision-maker; d) if the individual has any other form of substantial control, or; e) if an individual has 25% ownership of the entity, regardless of how much or how little control they have as to the operations and management of the reporting company.
An entity may need to report information about its beneficial owners if it is a corporation, a limited liability company, or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Tribal jurisdiction; or if it is a foreign company registered to do business in any U.S. state or Tribal jurisdiction by such a filing.
Not all entities are deemed “reporting entities,” as they are required to state and/or federal regulations that require the reporting of beneficial ownership. These exempt entities include, but are not limited to accounting firms, banks, brokers/securities dealers, credit unions, governmental authorities, insurance companies, investments companies and advisors, public utilities, tax-exempt entities, and venture capital fund advisors. A good rule of thumb is that if your entity reports to a regulating agency, the odds are more likely that you could be exempt from the BOIR requirement. Saunders, Walsh & Beard recommends that you verify your entity is exempt before making any assumption.
When an entity is completing their BOIR, it is required to provide basic information for itself and all beneficial owners. The reporting entity must provide its legal name, trade names, address, jurisdiction of registration, and its taxpayer identification number. Beneficial owners must provide their name, date of birth, residential address, and an identifying number from an identification document such as a passport or driver’s license. As any entity from a multi-million-dollar corporation to a sole-owned LLC must file their BOIR, the information required by FinCEN is nothing complex or intricate, but it is still imperative that said information is filed by the deadline.
As a business owner, you might have received mailings from third parties charging $500 or more for them to file the BOIR on your behalf, but most BOIRs can be completed within 15 minutes by the business owner(s).
A failure to file may become extremely costly, with civil penalties starting at $500 per day and criminal penalties of up to $10,000 and/or two years in prison. You can file the BOIR online at https://www.fincen.gov/boi or mail in a hard copy of the report. Once the report is filed, it only needs to be updated if there is a change in ownership, or a change in any of the other information provided in the report, such as a change in the address of a beneficial owner.
While the government has not effectively informed the public of this new requirement and there is pending litigation stemming from such, we strongly encourage you to file before your entity’s deadline.
At Saunders, Walsh & Beard we are always happy to assist you with any of your business needs, governmental compliance, or otherwise. If you have any questions about this new requirement or if you have any other business issues, please do not hesitate to contact us to speak with one of our transactional law professionals.
