What You Need To Know About The Corporate Transparency Act

The new federal anti-corruption law took effect January 1, 2024. How does it affect you?

What’s the impact?

What is the 2024 Corporate Transparency Act (CTA)?

1. The CTA was passed by Congress in 2021 to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities.
2.  The CTA requires all “reporting companies” to disclose certain ownership information to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) beginning January 1st, 2024.
3. “Reporting companies” are entities formed or registered to do business in the United States by the filing of a document with the Secretary of State or similar office (e.g. corporations, LLCs, LLPs). There are approximately 43 million LLCs that will need to be reported in 2024.

Overview:

• Reporting Company includes most entities formed in or registered to do business in the United States. However, the act also creates numerous exemptions, which exclude certain categories of entities (as described below). Entities that fall within one of these exemptions are not required to file Beneficial Ownership Information (BOI) reports under the CTA.
• Beneficial Owner is defined as any individual who (i) owns 25% or more of a reporting company or (ii) exercises “substantial control” over a reporting company. Many senior executives (such as a company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function) will be deemed beneficial owners under the CTA due to their control over a reporting company.
• Company Applicant is an individual who directly files an entity’s formation documents with a relevant state or tribal authority or, if more than one person is involved in the filing, the individual primarily responsible for directing or controlling the filing.

What Penalties will the Federal Government enforce for Failure to File?

• Entities who don’t comply properly with the Corporate Transparency Act 2024 filing and updates in perpetuity are at risk of fines of $500 a day or $10,000 and 2 years of imprisonment per Federal Law. 

Why is it vital to have our Company Compliance Service?

• For over 10 years, our team has ensured entity files are updated and renewed with any of the 50 states’ requirements per its Secretary of State. We understand the importance of “good standing” with the State and now the Federal Government. Additionally, we manage documentation and changes in your company’s annual minutes. We are always up to date on the latest requirements for your business upkeep, providing peace of mind for you to get back to your business.
• Stay educated in our Learning Center on best practices and resources.

What are Annual Minutes for my company and why do I need them?

• These are records of the company’s significant operations and changes during the year. Corporations are required by statute to have records of their business operations. LLC’s should have them in order to ensure asset protection and to avoid the piercing of The Corporate Veil. Keeping an organized binder for the entity with a copy of the renewal and annual minutes will give confidence and organization if the entity is ever involved with any legal matters.

Which beneficial owners do NOT need to report information?

The CTA exempts the following five types of individuals from reporting information under the definition of beneficial owner:

• Minor children (provided that the Reporting Company reports the information regarding the minor child’s parent or legal guardian);
• An individual merely acting on behalf of an actual beneficial owner as the beneficial owner’s nominee, intermediary, custodian, or agent;
• A reporting company’s employee whose substantial control over or economic benefits from the reporting company is derived solely from their employment status (i.e., not a senior officer);
• An individual whose only interest in a reporting company is a future interest through a right of inheritance; or
• An individual who is a creditor of the reporting company and qualifies as a beneficial owner solely through the rights or interests for the payment of a predetermined sum of money.

Who is exempted from the CTA?

While large organizations are generally exempt from reporting requirements, all companies should nonetheless perform an analysis to determine whether they meet the technical requirements for exemptions to apply. The CTA has 23 exemptions for companies to consider when determining whether or not the company must file a BOI Report. For example, there are exemptions for public companies, large operating companies, investment companies and advisers, and subsidiaries of certain exempt entities (as described in further detail below).

• Large operating companies. To qualify for this exemption, the entity must (i) have more than 20 full-time employees in the United States (a full-time employee generally means anyone employed an average of at least 30 service hours per week or 130 service hours per month), (ii) have an operating presence at a physical office, owned or leased by the exempted reporting company but not shared with non-affiliates within the United States, and (iii) report more than $5 million in gross receipts or sales (net of returns and allowances) in the prior year, excluding gross receipts or sales from sources outside the United States.
• Public companies (securities reporting issuers). To qualify for this exemption, the entity must be (i) an issuer of a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the Exchange Act) or (ii) required to file supplementary and periodic information under Section 15(d) of the Exchange Act.
• Investment companies or investment advisers. To qualify for this exemption, the entity has to be either (i) an investment company as per Section 3 of the Investment Company Act of 1940 (the Investment Company Act) or (ii) an investment adviser as per Section 202 of the Investment Advisers Act of 1940 (the Advisers Act). In addition, the entity must be registered with the SEC under either of these regulations.
• Venture capital fund advisers. To qualify for this exemption, the entity must (i) be an investment adviser described in Section 203(l) of the Advisers Act, and (ii) have filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the SEC. This allows a CTA exemption for investment advisers exempt from full registration with the SEC but still reporting certain information on a shortened Form ADV.
• Pooled investment vehicles. To qualify for this exemption, the entity must (i) be operating or advised by a CTA-exempt bank, credit union, broker or dealer, investment company or investment adviser, or venture capital fund adviser, and (ii) either (a) an investment company, as defined in Section 3(a) of the Investment Company Act or (b) a company that would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of Section 3(c) of that Act. In addition, the entity must be identified by its legal name by the applicable investment adviser (whether such adviser is a registered adviser or exempted adviser) in its Form ADV (or successor form) filed with the SEC or so identified in the next annual updating amendment to Form ADV required to be filed by the applicable investment adviser pursuant to rule 204-1 under the Advisers Act. This exemption does not extend to pooled investment vehicles of exempt reporting advisers that are not venture capital fund advisers. There is no exemption for a pooled investment vehicle of an offshore exempt reporting adviser. If the entity is formed outside the United States, there may be special reporting requirements.
• Subsidiaries of certain exempt entities. Any entity may be considered exempt under the subsidiary exemption if it is controlled or wholly owned, directly or indirectly, by another exempt entity (except an inactive entity).

How to File

1. Go to the FinCen BOI website and click “Prepare & Submit BOIR” online.

2. Click “Initial Report” if you haven’t submitted the report yet.