URGENT: CTA Reporting Deadline Approaching
November 11, 2024
As of January 1, 2024, the Corporate Transparency Act (CTA) came into effect and imposed strict reporting requirements on many small businesses relating to “Beneficial Ownership Information”. The Act was introduced as part of the Anit-Money Laundering Act of 2020, which was part of the National Defense Authorization Act. The CTA aims to prevent individuals from concealing ownership of U.S. entities which facilitate financial crimes.
Reporting Requirements
The act imposes a requirement to file a Beneficial Ownership Information Report (“BOIR”) by January 1, 2025 for entities formed before January 1, 2024. Entities formed after January 1, 2024 face a 90 day reporting deadline and entities formed after January 1, 2025 face a 30 day reporting deadline.
Who Is a Beneficial Owner?
An individual qualifies as a “Beneficial Owner” under the Act in two ways:
- Owning or controlling 25% or more of the entity
- Exercising “substantial control” over the reporting company, which may include:
- Serving as a senior officer (think c-suite).
- Having authority over the appointment or removal of senior officers or board members.
- Influencing major decisions, including those related to business operations, expenditures, or governance documents.
Given the broad definition, it is crucial to consult legal counsel to identify who qualifies as a beneficial owner for reporting to to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
What Does the CTA Require?
“Beneficial Owners” of non-exempt small businesses must report “Beneficial Ownership Information” to FinCEN, including the individual’s::
- Full legal name
- Date of birth
- Current residential address (business entities must provide a business address)
- ID number from an acceptable document (e.g., current Passport or driver’s license)
- An image of the identifying document
Information reported to FinCEN is not publicly available but may be disclosed to qualifying law enforcement and financial institutions with the Beneficial Owner’s consent.
Who Is a Company Applicant?
The regulations provide that a Company Applicant(s) for domestic entities is an individual who directly files the formation document (articles of incorporation or organization) which creates the reporting entity and the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.
Why is a Company Applicant Relevant?
For entities formed after January 1, 2024, a “company applicant” must be identified in the companies initial BOIR.
Is my business exempt?
The CTA includes 23 exceptions to the BOI reporting requirements, broadly covering:
- Financial entities (e.g., banks, credit unions, securities brokers)
- Insurance companies
- Public Accounting Firms
- Certain tax exempt entities
- Entities which employ at least 20 individuals and maintain gross receipts in excess of $5,000,000
- A subsidiary of certain exempt entities
- Inactive entities
The exemptions listed above are only a broad overview of the exemptions–these are far more complex in practice and thus it is essential to consult your attorney to determine if your entity qualifies as an exempt entity.
Civil Penalties and Criminal Liability
Failure to file a BOIR can lead to civil or criminal penalties. Willfully providing false or incomplete information to FinCEN can result in fines up to $10,000 ($500 per day) or imprisonment for up to two years.
Reporting Deadlines
Entities established in 2024 must file their BOIR within ninety (90) days of formation. Non-exempt entities existing before January 1, 2024, have until January 1, 2025, to file. Entities established on or after January 1, 2025 must file their BOIR within thirty (30) days of formation.
Constitutionality of the Act, Potential Changes
Various challenges to the constitutionality of the CTA are underway, which may affect legal advice. Additionally, two bills proposing significant changes to the CTA have been introduced in congress.
Action Steps
In the new frontier that is the CTA, how can you ensure compliance in order to avoid civil penalties or criminal charges?
- Consult your attorney to determine if your entity is eligible for an exemption.
- Identify individuals who constitute a beneficial owner under the act, including those who maintain “substantial control”
- Compile the necessary demographic information for the BOIR.
- File your BOIR independently or with the assistance of legal counsel or a reporting service.
At EMWN, we’re here to help. Do not hesitate to contact our attorneys for guidance on CTA compliance.