Corporate Transparency Act

Alert

Dec 5, 2023

The Corporate Transparency Act and its compliance obligations take effect January 01, 2024.

What is the Corporate Transparency Act and What Purpose Does It Serve?

The Corporate Transparency Act (the “CTA”) amends the current U.S. anti-money laundering laws. Congress hopes to create roadblocks for persons and organizations looking to conceal their ownership of certain entities formed with the intent of facilitating illegal activities by requiring those entities to report their Beneficial Ownership Information (“BOI”) to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

What Sorts of Entities Must File a BOI Report with FinCEN?

Subject to certain exemptions, every corporation, limited liability company (“LLC”), or other business entity which was created by filing paperwork with the secretary of state, or similar office depending on the jurisdiction, of a U.S. state, territory, or other government unit must file a report with FinCEN containing the entity’s BOI (a “BOI Report”). Under the CTA, these entities are referred to as “Domestic Reporting Companies.”

Entities created in foreign jurisdictions which are registered to conduct business in the U.S. will also be required to file BOI Reports, and are called “Foreign Reporting Companies.” Under the CTA, Domestic Reporting Companies and Foreign Reporting Companies are each a “Reporting Company.”

When is the BOI Report Due for a Reporting Company?

For Reporting Companies created BEFORE January 1, 2024, a BOI Report must be filed by January 1, 2025.

For Reporting Companies created ON OR AFTER January 1, 2024 but before January 1, 2025, a BOI Report must be filed within 90 days of formation.

For Reporting Companies created ON OR AFTER January 1, 2025, a BOI Report must be filed within 30 days of formation.

After the first BOI Report for a Reporting Company is filed, any change in information regarding that Reporting Company or its Beneficial Owners must be filed within 30 days of the change occurring.

What are the BOI Reporting Exemptions?

Whether a company meets the criteria for a BOI Report exemption is a fact-specific analysis. There are several specific exemptions for entities which may otherwise be considered a Reporting Company, summarized below:

Issuers of securities required to file information under Section 15 the Securities Exchange Act (the “Exchange Act”) or which issue securities registered under Section 12 of the Exchange Act, securities broker or dealer, securities exchange or clearing agency, and any other entity otherwise registered under the Exchange Act.
Entities which exercise governmental authority on behalf of the U.S., or any of its states, territories, American Indian tribes, or any political subdivision thereof.
Banks, credit unions, bank holding companies, savings and loan companies, or money services businesses otherwise registered with FinCEN.
Investment companies and advisers or venture capital fund advisers registered under the Investment Company Act or the Investment Advisers Act respectively.
Insurance companies and state-licensed insurance producers.
Entities registered under the Commodity Exchange Act (for example, futures commission merchants, swap dealers, commodity pool operators, etc.).
Public accounting firms.
Public utilities and regulated financial market utilities.
Pooled investment vehicles operated by a bank, credit union, securities broker, investment company, investment adviser, or venture capital fund adviser.
Tax-exempt organizations under Internal Revenue Code (“IRC”) Section 501 or political organizations under IRC Section 527, and certain entities assisting a tax-exempt organization so long as the entity in question is a U.S. entity and owned and funded by U.S. citizens or permanent residents.
Entities which (i) employ more than 20 full-time employees, (ii) are physically located in the U.S., and (iii) have at least $5,000,000 in gross receipts in the previous year (as reported on their U.S. tax return).
Entities which (i) have existed since before January 1, 2020, (ii) are not actively engaged in any trade or business, (iii) have no foreign persons as owners, (iv) have not had a change in ownership in the previous 12 months, (v) have not had any banking or financial activity in excess of $1,000 (funds sent or received through their accounts or accounts in the names of their affiliates) in the past 12 months, and (vi) do not otherwise hold any assets.

Some, but not all, exempt entities may be able to share an exempt status with subsidiaries that meet additional requirements. Every entity which is a Reporting Company is responsible to complete its own BOI Report.

Who is Considered a Beneficial Owner of a Reporting Company?

A Beneficial Owner is an individual who (i) owns or controls, directly or indirectly, at least 25% of the ownership interest in the Reporting Company, or (ii) exercises substantial control over the Reporting Company, whether directly, such as by serving as a senior officer of the Company and/or having certain corporate powers, or indirectly, through appointment or other rights.

What Information About the Reporting Company Must Be Included in a BOI Report?

Full legal name of the entity.

Any trade or “doing business as” (“DBA”) name.

Complete street address of the entity’s principal place of business.

Jurisdiction in which the entity was formed.

Federal tax identification number.

What Information About the Beneficial Owners Must Be Included in a BOI Report?

Full legal name of the individual.

The individual’s date of birth.

The individual’s current residential address.

A unique identifying number for the individual which may be taken from the individual’s: (i) U.S. passport, (ii) state-issued identification document, (iii) driver’s license, or (iv) foreign passport (only if none of the other options are available).

An image of the document used for the unique identifying number.

What Other Information Must Be Provided in a BOI Report?

For Reporting Companies created ON OR AFTER January 1, 2024, at least one, and not more than two “Company Applicants” must be identified and certain information must be provided about such individuals. A Company Applicant is the individual who directly files the document that creates the Reporting Company, plus the individual who directs or controls the filing (if more than one individual is involved).

What Information About the Company Applicants Must Be Included in a BOI Report?

Full legal name of the individual.

The individual’s date of birth.

The individual’s current business address.

An image of the document used for the unique identifying number.

What Are the Consequences of Failing to File a BOI Report?

The obligation to file a BOI Report rests with the Reporting Company. However, the Reporting Company’s senior officers can be personally liable for the Reporting Company’s failure to make or update a BOI Report. Failing to report complete information to FinCEN can result in fines up to $10,000 AND imprisonment for up to two years. The penalties are the same for willfully providing false information to FinCEN in a BOI Report.

What Does This All Mean?

Due to the novelty of this legislation, the ambiguity surrounding the definitions of Reporting Companies and Beneficial Owners, and the severity of the penalties for noncompliance, all companies which may be subject to these reporting requirements should contact their regular Honigman attorney as soon as possible to understand whether a BOI Report must be filed, what information that BOI Report must contain and when the BOI Report is due.

Honigman’s Corporate Transparency Act Taskforce Leaders:

Angela Gamalski, Brandy Bruyere, Don Kunz, and Adam Rothstein