How to Comply with the Corporate Transparency Act

Earlier this year, we posted a blog about the Corporate Transparency Act (“CTA”). As the effective date creeps closer, we thought we would highlight the important aspects of the CTA and offer our services regarding the filing of beneficial ownership information (“BOI”).

Let's begin with the basics. The CTA was enacted in 2021 and was designed to increase transparency in corporations and limited liability companies (“LLC”). The information provided when filing will help law enforcement agencies detect, prevent, and punish terrorism, money laundering, corruption, and other illicit activities.

One of the most important questions is “Is my company a reporting company?” A reporting company is any entity that meets the “reporting company” definition and does not qualify for an exemption. Generally, exempt companies are those that already report to a regulatory agency such as the U.S. Treasury, Securities and Exchange Commission, Commodity Futures Trading Commission, or the Public Company Accounting Oversight Board.

You should file your BOI if:

• Your company was created under U.S. laws and
  • is a corporation
  • is an LLC
  • was created by filing a document with the Secretary of State or similar office
• Your company was created under the laws of a foreign country
  • and has registered the company to do business in any U.S. state or tribal jurisdiction by filing a document with the Secretary of State or similar office

However, there are 23 exemptions. The Financial Crimes Enforcement Network (“FinCEN”) offers a Small Business Compliance Guide to help entities decide if they fall into one of the following categories.

• Securities reporting issuer
• Governmental authority
• Bank
• Credit Union
• Depository institution holding company
• Money services business
• Broker or dealer in securities
• Securities exchange or clearing agency
• Other Exchange Act registered entity
• An investment company or investment adviser
• Venture capital fund adviser
• Insurance Company
• State-licensed insurance producer
• Commodity Exchange Act registered entity
• Accounting firm
• Public utility
• Financial market utility
• Pooled investment vehicle
• Tax-exempt entity
• Entity assisting a tax-exempt entity
• Large operating company
• Subsidiary of certain exempt entities
• Inactive entities

If your entity is a reporting company, let's discuss what needs to be reported to FinCEN. The first pieces of information that you need to provide relate to the company's beneficial owner.

• A beneficial owner is any individual or individuals who, directly or indirectly
  • Exercises substantial control over a reporting company; or
    • Senior Officer
    • Ability to appoint or remove a Senior Officer
    • Important decision maker
  • Owns or controls at least 25% of the ownership interests of a reporting company
    • Equity, stock, or voting rights
    • Capital or profit interest
    • Convertible instruments
    • Option or privilege
• Exemptions to the beneficial owner definition
  • Minor child
  • Nominee, intermediary, custodian, or agent
  • Employee
  • Inheritor
  • Creditor

The next area that needs to be reported is the information on the company's applicants. Company applicants only need to be reported if your entity is formed after January 1, 2024. The company applicant refers to the individual or individuals, up to two, who are responsible for the filing. Applicants fall into one of two categories: direct filers or intermediaries.

• Direct filer
  • The person who directly filed the document creating the reporting company
  • The direct filer must be identified in the filing if the company is required to report their company applicant
• Directs or controls the filing action
  • The person responsible for directing or controlling the filing of the document that created the reporting company
    • Lawyer directing paralegal
  • Not all reporting companies will have two company applicants

The next big question is what information you need to report on for the company, its beneficial owners, and its company applicants.

• Reporting Company
  • Full legal name
  • All trade names or “doing business as” (“DBA”) names
  • Complete current U.S. address
  • State, Tribal, or foreign jurisdiction of formation
  • Foreign reporting only – State or Tribal jurisdiction of first registration
  • Internal Revenue Service (“IRS”) Taxpayer Identification Number (“TIN”) (Including an Employer Identification Number (“EIN”))
• Each Beneficial Owner and Company Applicant
  • Full legal name
  • Date of birth
  • Complete current address
    • Company applicants who form or register a company in the course of their business will report a business address
  • Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents;
    • U.S. passport
    • State driver's license
    • Identification document issued by a state, local government, or tribe
    • If an individual does not have any of the previous documents, a foreign passport

FinCEN has come up with a way to make the process easier for reporting companies and individuals. They will supply those who submit a request with a FinCEN identifier. A reporting company may request a FinCEN identifier by checking a box when submitting a BOI report. An individual may electronically apply by submitting the same four pieces of information above. Both will receive a unique number that can be used in place of the personal information requested above. Those issued a FinCEN Identifier are required to keep the information up to date.

Now that we have covered all the information included in the filing, we should discuss when to file. The filing timeline is different for companies created before and after January 1, 2024.

• Created after January 1, 2024
  • File30 calendar days after receiving actual or public notice of the creation or registration
• Created before January 1, 2024
  • File before January 1, 2025
• Previously exempt
  • 30 calendar days after your company stops qualifying for the exemption
• Newly exempt
  • File an updated BOI report
    • Company must identify itself
    • Check the box noting it is newly exempt
• Updated information
  • Any changes must be filed no later than 30 days after the change occurred
  • Examples of changes
    • New DBA
    • New company address
    • Change in beneficial owners
    • Change in personal information of beneficial owners
      • Includes new image on driver's license or passport
    • A minor reaches the age of majority

Once the CTA becomes effective, reporting companies must comply, otherwise there will be penalties. Failure to report complete or updated beneficial ownership information to FinCEN, or knowingly providing false or fraudulent beneficial ownership information can result in civil or criminal penalties. This includes civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment of up to two years, a fine of up to $10,000, or both.

FinCEN will begin accepting BOI reports on January 1, 2024, through its secure filing system. The system is currently under development. FinCEN plans to publish instructions and other technical guidance. It will be available at www.fincen.gov/boi. If you need assistance with your BOI or would like FinTech Law to file your BOI report on your behalf, please reach out to our team.