The Corporate Transparency Act
January 10, 2024
Types : Alerts
Under the Corporate Transparency Act (“CTA”), which became effective January 1, 2024, certain corporations, limited liability companies, limited partnerships, and other closely held entities (“Reporting Companies”) that do not satisfy all of the following requirements: (i) at least 20 employees, and (ii) $5 million of annual gross receipts or sales as reported on a U.S. income tax return, and (iii) a physical presence in the United States, may be required to file and update a confidential beneficial ownership information (“BOI”) report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Tax-exempt entities and certain regulated entities are exempt from the reporting requirements of the CTA.
The stated purpose of the CTA is to combat the exploitation of smaller, unregulated entities for money laundering, financing of terrorism, and other illegal activities by providing law enforcement with conditional access to the information provided in the BOI reports.
For every entity now in existence or created in the future, it is important to determine if it is a Reporting Company and, if so, to comply with all BOI reporting requirements. There are substantial financial penalties for failing to comply.
Every non-exempt entity, no matter how small it is or how little income it has, is considered a Reporting Company and must file a BOI report. There is no de minimis exception to the reporting requirement. For example, an LLC that owns only residential real estate or an LLC or family limited partnership formed as part of an estate plan may be a Reporting Company.
For Reporting Companies in existence prior to January 1, 2024, the due date for the initial report is January 1, 2025. For Reporting Companies formed in 2024, the due date is 90 days from the date the entity is formed. For Reporting Companies created after December 31, 2024, the due date is 30 days after the date of the entity’s formation. After filing the initial BOI report, the Reporting Company must also file updates within 30 days of any change to the information in the report.
A BOI report will identify two categories of individuals for the Reporting Company: (i) “beneficial owners,” and (ii) for Reporting Companies formed after December 31, 2023, the “company applicants.”
A “beneficial owner” of a Reporting Company is an individual who owns 25% or more of the entity or who exercises “substantial control” (such as an officer or managing member) over the entity. If a Reporting Company is owned by a trust, the beneficial owners may include the trustees, settlors or grantors, and beneficiaries. A “company applicant” is the individual who files (typically with a state’s department of state) the papers forming the Reporting Company and the individual who directs or controls that filing.
For each beneficial owner and company applicant, the report must provide the individual’s name, date of birth, current address, and a copy of the individual’s passport or driver’s license.
Reports and updates are filed online on FinCEN’s Beneficial Ownership Secure System, called the “BOI E-Filing System.” The e-filing system can be accessed here.
This report provides just a brief overview of the CTA. FinCEN has issued expansive regulations detailing the requirements of the CTA with which all Reporting Companies must comply. These rules are new and may change over time.
If you are connected to an entity that is, or may be, a Reporting Company, you are encouraged to contact a member of Montgomery McCracken’s Business Department to discuss whether a BOI report must be filed and, if so, how best to comply with the reporting requirements.