By: Zahra Smith, Tom Scriven and Tom Bealer
New York, New York – As you are likely aware, the Corporate Transparency Act (the “CTA”) which went into effect on January 1, 2024, imposed disclosure and reporting obligations on certain companies that are formed or registered to do business in the US. Under the CTA, certain companies are required to file corporate transparency reports with beneficial ownership information. For those companies formed before January 1, 2024, the deadline to comply is January 1, 2025.
The CTA was enacted by congress, as a way to deter bad actors from using shell companies, or other opaque ownership structures, to prevent financial crimes including money-laundering, tax evasion and the circumvention of economic sanctions laws. To accomplish this goal, the CTA requires that certain companies (each a “Reporting Company”), report the personal information of their beneficial owners in a report (a “BOI Report”) that is to be filed with Financial Crimes Enforcement Network (“FinCEN”), the criminal enforcement arm of the Treasury Department. Beneficial owners, broadly, are those individuals who either directly or indirectly are deemed to exercise substantial control over the Reporting Company or who own or control 25% or more of the ownership interests of the Reporting Company. On January 1, 2024, FinCEN began accepting BOI Reports.
- Reporting Companies formed before January 1, 2024 have until January 1, 2025 to file their BOI Reports.
- Reporting Companies formed after January 1, 2024 have 90 days from the formation of the entity to file their BOI Reports.
- Reporting Companies formed after January 1, 2025 will have 30 days from the formation of the entity to file their BOI Reports.
There have been challenges to the CTA in the courts and at least one District Court in Alabama, declared the CTA unconstitutional on the grounds that it exceeds congressional power. However, the Justice Department, on behalf of the Treasury Department, appealed the ruling. In conjunction with the appeal, FinCEN issued a statement clarifying that while the litigation is ongoing, Reporting Companies are still required to comply with the CTA.[1] Accordingly, at this point the CTA remains the law and FinCEN will require Reporting Companies to comply with the disclosure and reporting requirements.
Immediate Next Steps:
Determine Reporting Company Status. To the extent you have not done so already, we encourage our clients to determine whether your entity(ies) is a Reporting Company, whether you qualify for an exemption and who your beneficial owners are, noting that “beneficial owners” may include those who own certain threshold of ownership interests and those who may exercise substantial control over the entity itself. An entity will be considered a Reporting Company, unless it falls under one of the 23 available exemptions. At a high level, exemptions exist for entities that already are subject to state or federal regulations, including certain tax-exempt entities, public companies, banks and credit unions, investment companies and funds advisers, and other categories of entities.
File BOI Reports by Deadline. If you have not yet filed your BOI Reports for entities formed before January 1, 2024, RPCK recommends connecting with a registered agent / paralegal service to assist with the filing of the reports. Cogency Global, a provider of corporate services, has a BOI Report team that can assist with the filing of BOI Reports and offers a robust platform that allows a user to securely prepare and file BOI Reports and transmit them to FinCEN through their CTA Central™, platform. Cogency also offers an Exemption Wizard that allows a user to check for available applicable exemptions, BOI Report checklists and other resources that can help you become knowledgeable on the CTA and CTA compliance.
Please contact: BOIReport@cogencyglobal.com, for additional information.
Continuing Obligations. A Reporting Company does not need to file an annual update to the BOI Report. However, an updated BOI Report must be filed within 30 days if any changes occur to the information reported in the initial BOI Report. This also includes changes to the information of the Reporting Company’s beneficial owners. To comply with continuing obligations, and as further discussed below, Reporting Companies should consider putting processes in place for maintaining the relevant information for the Reporting Company itself, as well as its beneficial owners.
Penalties for Failure to Comply. The willful violation of the CTA and failure to file an initial BOI Report, failing to report complete or updated information, or filing false information, may result in civil or criminal penalties. FinCEN has noted that such penalties may include civil penalties of up to $591 per day, or criminal penalties including imprisonment for up to two years and a fine of up to $10,000.[2] Further, senior officers of a Reporting Company that fail to file a required BOI Report may be held accountable for that failure.
Other Next Steps and Considerations
- Review and familiarize yourself with the CTA and develop compliance practices. Continue to review the CTA compliance rules and keep an eye out for changes in the law. Additionally, you should begin developing internal compliance practices to ensure that you will be able to file timely and accurate BOI Reports, as well as update any relevant information within 30 days, as required under the CTA.
- Consider dissolving unused entities. If you are maintaining entities that are not being used it may be in your best interest to dissolve these entities to reduce reporting obligations.
- Consider the CTA when determining your entity’s structure. You should consider the CTA when adopting strategies and structuring your entity to consider and if possible, reduce reporting obligations. Note that this may create additional complexity and add time to projects.
- Consider obtaining FinCEN identifiers for beneficial owners and company applicants. A FinCEN identifier (a “FinCEN ID”) is a unique identifying number that FinCEN issues to individuals or Reporting Companies upon request after the individual or Reporting Company provides the required information to FinCEN (including for example name, address, DOB, identifying number and copy of an acceptable identification document such as a valid driver’s license or passport and the taxpayer identification number for an entity). Each FinCEN ID is specific to the individual or Reporting Company, and only one can be obtained for each. Although there is no requirement to obtain a FinCEN ID, doing so can simplify the reporting process. A FinCEN ID can provide administrative efficiency and another layer of privacy. It is particularly useful for an individual who is a beneficial owner or company applicant for a lot of Reporting Companies. Instead of having to provide personal information to several companies this individual will only need to provide its FinCEN ID. It can also streamline and simplify the BOI reporting process for Reporting Companies in that they only have to report the FinCEN ID instead of the personal information of their beneficial owners and company applicants.
For the full text of the CTA, as well as detailed reference guides, please visit the FinCEN website and its other resources, including reference materials which can be found here, and Small Business Resources which can be found here.
We will continue to monitor developments relating to the CTA closely and provide further updates and guidance as more information becomes available. As always, RPCK lawyers are available to assist with any questions you may have.