Schneiders & Associates, LLP is reaching out to provide some clarity and general information regarding the Corporate Transparency Act (“CTA”).  Some of you may have heard about the new law, and like many of us when first learning about it, were left with more questions than answers.  Please be aware that while the law itself appears to be straightforward, in practice it can be very complicated.  The below memorandum is a streamlined “Who, What, Where, When, Why, and How” overview of the CTA. Should you have any questions on the CTA, need further explanations or examples, or need assistance in determining if and how the CTA applies to your business, please do not hesitate to reach out and schedule a meeting or call to discuss how it applies specifically to your business and what, if any, information your business will be required to report.

After reviewing this memorandum, please make sure you confirm if your entity (e.g., corporation or LLC) is a Reporting Company, determine all Beneficial Owners, obtain all required information and submit all such information to FinCEN.  If you are not certain if your entity is a Reporting Company, who the Beneficial Owners of the Reporting Company are, or any other information that is required, or how to report it, please do not hesitate to reach out to us for assistance with any of the CTA requirements.

FREQUENTLY ASKED QUESTIONS

What is the CTA and Why was it enacted?

The CTA was enacted in 2021 as a way to combat the use of shell companies used for money laundering, terrorism financing, corruption, and tax fraud, by creating the Financial Crimes Enforcement Network (“FinCEN”), which will house certain information on certain business entities that have historically had little oversight and have been used for such nefarious practices. 

Why you shouldn’t ignore the CTA and Who is liable for CTA violations.

Violations of the CTA (i.e., not reporting the required information to FinCEN) can result in civil and criminal penalties.  There can be civil penalties of up to $500 for each day that the violation continues. Additionally, a person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. To be clear, it is the Reporting Company’s responsibility to identify all Beneficial Owners, timely report all required information of its Beneficial Owners, Company Applicants (if applicable), and other required information.  The filer who knowingly submits incorrect information and the Beneficial Owner who refuses to provide the required information can be liable for CTA violations.

Who does it effect?

Reporting Company

A “Reporting Company” is a business entity that  (a) is created by filing a document (e.g., Articles of Incorporation, Articles of Organization, etc.) with the Secretary of State or other similar office under state law or Indian Tribe law, or (b) is a foreign entity and is registered to do business in the United States by filing a document with the Secretary of State or other similar office under state law or Indian Tribe law. Please note, that if a business entity is a subsidiary of another entity, they are still required to report, independently, whether or not their parent company is a Reporting Company and files its own reports to FinCEN or is deemed to be exempt from filing reports to FinCEN. There are 23 exemptions, please see Exhibit A for a list of those exemptions. 

Beneficial Owners

A “Beneficial Owner” is a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise EITHER:

  1. Owns or controls at least 25% of the Reporting Company’s ownership interest, or
  2. Exercises substantial control over the Reporting Company.

Ownership or control can occur by owning equity, stock, voting rights, capital or profits interest, convertible instruments, options or privilege, or any other instrument or agreement used to establish an ownership interest. An owner of non-voting stock may still be deemed a Beneficial Owner.

If a Reporting Company is owned by other entities (e.g., an LLC or corporation) you will need to go through each entity until there is a natural person that owns the interest and determine if that natural person owns, through all the entities, a 25% or greater interest in the Reporting Company. 

If a trust owns the interest, then the Settlor(s)/Grantor(s)/Trustor(s), Trustee(s), and/or Beneficiaries of the trust may be deemed to be a Beneficial Owner.

Having “substantial control” over a Reporting Company can occur because of your role/position in the Reporting Company.  Below, please find a list of common ways that FinCEN will determine if an individual will have substantial control over a Reporting Company.  Please be advised, this is not a definitive list, an analysis may need to be done to determine if an individual has substantial control over a Reporting Company.

  • A senior officer, which are the President, CFO, CEO, COO, General Counsel, or any other officer, regardless of title, who performs similar functions that are customarily performed by these officer roles is deemed to have substantial control. Please note the Treasurer and Secretary are not deemed to have substantial control, however, it is common for the Treasurer to also be deemed the CFO. You need to check your bylaws to see if that is the case with your corporation.  A Manager or Managers of an LLC are deemed to have substantial control.
  • If an individual has the authority to appoint or remove a senior officer or a majority of directors of a Reporting Company, they are deemed to have substantial control.
  • If an individual directs, determines, or otherwise has substantial influence over important decisions of the Reporting Company, they are deemed to have substantial control.  

There are 5 exemptions for Beneficial Owners, please see Exhibit B for a list of those exemptions.

Company Applicant (applicable to Reporting Company’s formed on or after January 1, 2024)

A “Company Applicant” is the individual that files the document with the Secretary of State or other similar office under state law or Indian Tribe law, that forms and creates the Reporting Company.  By way of example, if you retained our firm to create your business entity, the attorney that directed and oversaw the formation of your entity and the corporate paralegal that actually submitted the application to the Secretary of State would be your Company Applicant.  Any Reporting Company that was in existence prior to January 1, 2024, is exempt from having to report their Company Applicant.

What must be reported?

The Reporting Entities that are required to report to FinCEN must report the following information:

Reporting Company information:

  1. Legal Name
  2. Any “doing business as” (d/b/a) or “trading as” (t/a) names
  3. Current physical US street address of its principal place of business (a PO Box address is not allowed)
  4. Jurisdiction of formation or registration
  5. Taxpayer Identification Number
  6. Whether it is filing an initial report, a correction or an update of a prior report

Beneficial Ownership Report:

  1. Individual’s name
  2. Individual’s date of birth
  3. Individual’s residential address

Individual’s Identification Document (i.e., Driver’s License or Passport): the identifying number, the name of the issuing state or jurisdiction, and an image of the identification document 

Company Applicant

  1. Individual’s name
  2. Individual’s date of birth
  3. Individual’s residential address
  4. Individual’s Identification Document (i.e., Driver’s License or Passport): the identifying number, the name of the issuing state or jurisdiction, and an image of the identification document

*FinCEN Identifier – An individual can also obtain a FinCEN Identifier which is a unique identification number that they can submit in lieu of providing all of their information and a copy of their ID each time they have to report to FinCEN as a Beneficial Owner or Company Applicant. They will still need to submit the same information but will only need to submit it once to obtain their FinCEN Identifier.  If an individual reports for more than one Reporting Company, then this may be easier to manage.

When does the information have to be reported.

For all Reporting Companies formed before January 1, 2024, the Reporting Company has until January 1, 2025, to submit all required information to FinCEN.

For all Reporting Companies formed in the calendar year 2024, the Reporting Company must submit all required information within 90 calendar days of receiving actual or public notice of its formation.

For all Reporting Companies formed on or after January 1, 2025, the Reporting Company must submit all required information within 30 calendar days of receiving actual or public notice of its formation.

There is no fee to submit any information to FinCEN and no annual reporting, once the initial information is submitted the only requirement is to keep all information about the Reporting Company and all current Beneficial Owners current, including new and/or additional Beneficial Owners. If there is any change to the information submitted about the Reporting Company or its Beneficial Owners, the Reporting Company must submit the updated information to FinCEN within 30 days of the change.  If the Reporting Company discovers any information was reported in error, the Reporting Company has 30 days to fix any such inaccuracies. There is no obligation for a Reporting Company to submit updated information about its Company Applicant.

Where do you file the required information?

All information that must be reported can be submitted at https://boiefiling.fincen.gov/fileboir. You can fill out a PDF and submit online, or file directly online through the website.

Next Steps.

First, determine if your business entity is deemed a Reporting Company. If your business is a Reporting Company, begin to assemble a list of all the Beneficial Owners and obtain their required information.  If you need assistance in determining either of those factors, please do not hesitate to reach out.  As noted earlier, we are happy to assist in determining if you are a Reporting Company and who your Beneficial Owners are. 

Second, if your business entity is a “Reporting Company” we would strongly advise that you amend your Bylaws, Operating Agreement, applicable Employment Agreements, and any other agreement that you have which governs the relationship between the business and a Beneficial Owner, so that it requires them to (1) provide all needed information so that you can submit the Beneficial Ownership Report, (2) notify the appropriate Officer, Manager, or other applicable individual of any changes to the required information the business must report to FinCEN in a timely manner, and (3) add indemnification language should their refusal or delay in providing the business with such information result in the business or filer being fined.

Again, this memorandum touches on the main points of the CTA, should you have any additional questions regarding the CTA, need any further clarification, or require any assistance in determining if your business entity is a Reporting Company, who the Beneficial Owners are, or where to report the required information, please reach out to our office and we can schedule a meeting or phone call to address any questions you may have.

Exhibit A

Exemptions to Reporting Company Designation

Please reach out should you have any questions as to or to determine whether or not your business entity falls under one of these exemptions. Please note there are qualifications that must be met for each of the below in order for FinCEN to deem a business entity exempt under a particular Exemption Number.

Exemption No. Exemption Short Title
1 Securities reporting issuer
2 Governmental authority
3 Bank
4 Credit Union
5 Depository institution holding company
6 Money services business
7 Broker or dealer in securities
8 Securities exchange or clearing agency
9 Other Exchange Act registered entity
10 Investment company or investment adviser
11 Venture capital fund adviser
12 Insurance company
13 State-licensed insurance producer
14 Commodity Exchange Act registered entity
15 Accounting firm
16 Public utility
17 Financial market utility
18 Pooled investment vehicle
19 Tax-exempt entity
20 Entity assisting a tax-exempt entity
21 Large operating company
22 Subsidiary of certain exempt entities
23 Inactive entity

Exhibit B

Exemptions to Beneficial Owners Designation

Please reach out should you have any additional questions as to whether or not an individual is exempt as a Beneficial Owner. Please note there are qualifications that must be met for each of the below in order for FinCEN to deem an individual exempt under a particular Exemption Number.

Exemption No. Exemption
1 Minor Child
2 Nominee, intermediary, custodian, or agent
3 Employee
4 Inheritor
5 Creditor

By: Jessica Villar, Esq.

The post The Who, What, Where, When, Why, and How of the New Corporate Transparency Act (CTA) Reporting Requirements. Your Quick Guide to the New Law that has Everyone Asking Questions. appeared first on Schneiders & Associates, LLP.