Corporate Transparency Act: Does it Apply to Your Business?
The new year brings in a whole host of new laws - some of which apply to the business community. One such law is the Corporate Transparency Act that went effect on January 1, 2024. So what is the CTA and how does it impact you and your business? Find out all the details in this article and continue to follow the Columbia County Chamber for the latest business news.
The Corporate Transparency Act:
What a Small Business Needs to Know
By: Sincerai Stallings, Esq.
A new Federal law is going into effect starting January 1, 2024 that will affect nearly every small and mid-size business owner. The Corporate Transparency Act (“CTA”) was enacted by Congress on January 1, 2021. It is part of the National Defense Authorization Act. What is the purpose of this new law? It is intended to help prevent and fight money laundering, corruption, tax fraud and financing terrorism. How might this affect you as a business owner? The CTA sets forth a beneficial ownership reporting requirement for corporations, limited liability companies, and other entities formed or registered to do business in the United States. Failure to comply with this reporting requirement will result in civil and criminal penalties for willfully failing to report information or providing false information, including a $500/day fine or imprisonment for up to two years and/or a fine of up to $10,000. Thus, it is important to be familiar with this law and its potential impact.
First and foremost, I must mention that this article is merely an overview of important aspects of the CTA. It is not intended to be a practical guide or legal advice. It is always advisable that you consult an experienced business attorney to fully understand the legal implications of this Act. Although many websites will contend that you can fill out the reporting forms yourself, I strongly advise you to consult an attorney or CPA to assist you with (1) determining whether your business is required to report, (2) properly completing the form, and (3) filing the form correctly.
Is Your Business Required to File a Report Under the Act?
Under this Act, most small entities, including single member LLCs, must file the report. There are two types of entities identified in the CTA: domestic and foreign reporting companies. Domestic reporting companies include corporations, limited liability companies or “any entities created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian Tribe.” In the State of Georgia, this will include LLCs, corporations, and non-tax exempt non-profit corporations (or tax exempt non-profits that lose their tax exempt status). This will also include limited partnerships and limited liability limited partnerships, since those entities are required to register with the Secretary of State. Certainly, there will likely be issues regarding whether a family partnership or other partnership-type entities will be required to file the report.
What Is the Reporting Requirement and Where to File?
Businesses that meet the requirements for reporting must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) online (https://www.fincen.gov/boi).
A reporting company must disclose:
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Its full legal name and any trade name or DBA;
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Complete address, including the street address of the principal place of business for U.S. companies and the primary U.S. location for other businesses;
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The State, Tribal or foreign jurisdiction in which the business was formed or first registered, depending on whether it is a US or foreign company;
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The companies Taxpayer Identification Number (TIN)/Employer Tax ID (EIN);
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For foreign entities without a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction should be entered.
Additionally, for each beneficial owner and each company applicant (see below), the company must provide the individual’s:
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Full legal name;
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Birthdate;
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A complete address; and
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For company applicants who form or register an entity in the course of the company’s business, this includes the street address of the company applicant. For all individuals, beneficial owners and applicants, the address must be the residential street address of the individual.
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An identifying number from a non-expired driver’s license, passport, or other approved document for each individual, as well as an image of the document from which the document was obtained.
In addition to the initial filing of this information, there are requirements to update the original filing when there are changes to the LLC. For example, if a beneficial owner changes addresses or legally changes their name. If there is a change in the operation and delegation of duties within the business that might possibly be considered given a new person substantial control of the business, even if that new person performing those duties did not own any of the business.
The CTA lists 23 categories of entities that are exempt from reporting. View the list of exemptions here: https://www.fincen.gov/boi-faqs. One significant exemption is any company that has filed a Federal Income Tax or information return in the U.S. for the previous year showing $5M in gross receipts or sales in the U.S.
When is Filing Required?
A company that was registered prior to January 1, 2024, must file the report with FinCEN no later than January 1, 2025. Companies registered on January 1, 2024 or thereafter, must file the report within 90 calendar days of formation with the State or other registering entity.
Who Is Considered a Beneficial Owner and Company Applicant?
According to the CTA, Beneficial Owners are individuals who:
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directly or indirectly exercise “substantial control” over the reporting company, or
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directly or indirectly own or control 25% or more of the “ownership interests” of the reporting company.
An individual has “Substantial control” over a company if that individual directs, determines, or exercises substantial influence over important decisions of the company. Obviously, this includes Officers, Members owning 25% or more in an LLC. It also includes any individual that has the authority to appoint officers or the majority of a board of directors or other company governing board(s). Something of interest that I noticed is that this substantial control or ownership can extend to require disclosures of information of Trustees of a Trust that may be sitting as a representative on a Board or control over intermediary entities that exercised substantial control over entities.
An individual may also indirectly or directly own or control an ownership interest in a reporting company through contract, arrangement, understanding, relationship, or other arrangement. This includes Trustees and beneficiaries of trusts. However, the CTA has specifically excluded minor children, as long as their legal guardian or parental information is provided.
For Companies registered January 1, 2024 and after, Company Applicant information must also be reported. A company applicant is an individual who (1) files the document creating or first registering the reporting company; and (2) is primarily responsible for directing or controlling the filing of relevant documents.
Who Will Have Access to Reported Information?
The information reported will not be made publicly available. FinCEN’s Access Rule provides that the reports may be provided on a confidential basis to
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U.S. Federal agencies involved in national security, intelligence or law enforcement activity;
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State, local and Tribal law enforcement agencies with court authorization;
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Foreign requesters that meet additional requirements for disclosure;
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Financial institutions;
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Federal functional regulators and other regulatory institutions for compliance with costumer due diligence requirements;
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US Department of the Treasury officers and employees who require access to perform their job duties.
What Next?
It is always important to comply with the law. This is a Federal legal requirement, so it is imperative that you comply with the reporting requirement. As stated above, I would advise seeking the assistance of a business attorney or qualified accountant. However, keep in mind that this is a very new law, and the number of professionals versed in the law will be limited. So, be careful of professionals claiming to be “experts” in this area. The likelihood of finding an expert in a legislation that has just started being implemented is akin to finding a pot of gold at the end of the rainbow. However, an attorney or accountant could assist you with interpreting the law and determining how your business fits within the legal framework of the CTA. Please note that you may run into the issue of finding an attorney or accountant that does not offer this service because their liability insurance does not cover these services yet.
Be wary of scams. There are websites popping up claiming to be reporting websites. The only legitimate website to file the BOI Report is https://www.fincen.gov/boi. There is no fee for filing the report. So, be aware of websites claiming to file the report for a fee.
If you have questions about the CTA and BOI, check out the FinCEN Faqs website. There is a lot of information on the website.
