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Reporting Beneficial Ownership Information: Corporate Transparency Act

Hands straightening a business tie

Introduction

As Miller & Law, P.C. represents many entities, we felt it was important to send out this notice at this time in order to make impacted businesses aware of a significant change in the law.  Specifically, beginning January 1, 2024, a new filing requirement has gone into effect for many entities as part of the Corporate Transparency Act enacted by Congress on January 1, 2021 (the “CTA”, which is part of the National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283). 

 

Intended to increase transparency about who owns and controls an entity, the CTA is designed to make it easier for law enforcement to track criminal activity, in particular, money laundering, by requiring certain types of entities to file a Beneficial Ownership Information (“BOI”) report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  The consequences of non-compliance are significant:

 

PLEASE BE ADVISED THAT THE FAILURE TO TIMELY FILE A BOI REPORT OR FILING A FALSE OR INCOMPLETE BOI REPORT CAN RESULT IN CIVIL PENALTIES OF UP TO $500 PER DAY AND/OR CRIMINAL PENALTIES INCLUDING FINES UP TO $10,000 OR IMPRISONMENT OF UP TO 2 YEARS.

 

Given the potential penalties involved, it is critical that business owners and those individuals responsible for managing and operating a business understand (i) who must file a BOI report, (ii) when a BOI report is required to be filed, and (iii) what information is required to be provided in a BOI report.  Below, please find set forth an informational summary as to these requirements.

 

Who Must File Under the Corporate Transparency Act?

 All reporting companies, unless subject to a qualified exemption, are required to timely file a BOI report with FinCEN.  Reporting companies include, but are not limited to, the following:


  • Corporations;

  • Limited Liability Companies;

  • Limited Partnerships;

  • Business Trust

  • Limited liability Partnerships; and

  • Limited Liability Limited Partnerships.

 

The burden of (or responsibility for) filing a BOI report will mostly fall upon smaller businesses as several categories of entities are exempt from these filing requirements, including, broadly:

 

  • Publicly traded companies;

  • Financial institutions;

  • Issuers of securities registered with the SEC; and

  • Large operating companies.

 

“Large operating companies” are generally any entity with (i) 20 or more full-time US employees, (ii) more than $5 million in annual US-sourced revenue, and (iii) a physical office in the United States.

 

When is a BOI Report Required to be Filed

 The CTA sets forth a three-tier reporting system for filing BOI reports:

 

1.      For entities formed prior to January 1, 2024, the entity has until December 31, 2024 to file its initial BOI report;

 

2.      For entities formed on or after January 1, 2024 but before January 1, 2025, the entity has 90 days from the date of organization/incorporation to file its initial BOI report; and

 

3.      For entities formed on or after January 1, 2025, the entity has 30 days from the date of organization/incorporation to file its initial BOI report.

 

In addition to filing an initial BOI report, reporting companies must also update and correct information in their previously filed BOI reports.  Updated reports are due 30 days after a change occurs.  It is therefore critical for any entity to determine where it falls within these reporting requirements and timely take action to avoid adverse consequences.

 

What Information is Required to be Provided

 An entity’s BOI report will be filed electronically through a secure filing system operated by FinCEN.

 

Information to be provided by the reporting company includes:

 

  • The reporting company’s full legal name;

  • All trade names used by the reporting company;

  • Its complete current U.S. address (this is the company’s principal place of business in the United States);

  • Its jurisdiction of formation;

  • Its Employer Identification Number;

  • Information about all of its beneficial owners; and

  • For reporting companies formed after December 31, 2023, information about all of its company applicants.

 

A “beneficial owner” is any individual who:  (i) owns or controls at least 25% of the ownership interests in the reporting company, or (ii) has substantial control over the reporting company.  An individual exercises “substantial control” over a reporting company if such individual meets any of four general criteria: (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.

 

A “company applicant” is either (i) the individual who directly files the document that creates a domestic reporting company or first registers a foreign reporting company (e.g., this individual would have actually physically or electronically filed the document with the secretary of state or similar office); or (ii) the individual who is primarily responsible for directing or controlling the filing of the creation or first registration document even though such individual did not actually file the document.  An individual may be both a beneficial owner and a company applicant. 

 

Information to be provided with respect to each beneficial owner and company applicant includes:

 

  • Their full legal name;

  • Their date of birth;

  • Their current complete address; and

  • The “unique identifying number and issuing jurisdiction from an acceptable identification document, and an image of the identification document” issued to a beneficial owner or company applicant.  Approved documents include one of the following non-expired documents:

  • A US passport;

  • A state driver’s license;

  • An identification document issued by a state, local government or tribe; or

  • If an individual does not have any of the above-listed documents, a foreign passport.

 

Conclusion

Ready or not, timely filing and updating BOI reports is now a critical component of a reporting company’s corporate compliance.  The failure of a reporting company to comply can result in fines and/or jail time.  Accordingly, it is important for the owners and managers of reporting companies to develop procedures and policies that would help them comply with these new reporting requirements.


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Attorney Advertising: This article was prepared for general informational purposes only based on information available at the time of publication and is not intended as, does not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Miller & Law, P.C. (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials.  The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. 


 

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