The Corporate Transparency Act (“CTA”) is a sweeping new law that will affect millions of companies, both domestic and foreign beginning on January 1, 2024.
The new law implements Section 6403 of the CTA and a new section (31 U.S.C. 5336) of the Bank Secrecy Act (BSA) in an effort to enhance transparency of the beneficial ownership of U.S. corporations. The objective of the law is to require companies to reveal their beneficial ownership information (“BOI”) to assist the U.S. government in its efforts to identify bad actors who use the anonymity provided by various corporate structures in furtherance of their lawless activities. It is important that companies, their owners and their senior management be aware of this law.
Effective Jan. 1, 2024, business entities such as corporations and LLCs, as well as foreign entities registering to do business in the United States will be required to submit company information, BOI and company applicant information to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Entities formed before Jan. 1, 2024, must submit company information and beneficial owner information by Jan. 1, 2024. Entities created after Jan 1. 2024, will have 30 days after formation, to submit information to FinCEN. There are however 23 exemptions allowed by the CTA. For example, if a company has more than 20 full-time employees and more than $5 million in gross receipts, it may qualify for an exemption granted to what is called a “large operating company”. Additionally, certain other exemptions exist for companies operating in other already highly regulated industries (e.g. publicly traded companies, financial institutions, insurance companies, etc..). Nevertheless, for the vast-majority of small businesses, no exemption exists.
Under the new law, reporting companies must file BOI reports with FinCEN by providing information about the reporting company, as well as information about two categories of individuals: (1) the beneficial owners of the reporting company; and (2) the company “applicants”, who are the individuals who filed a document to create the reporting company or register it to do business. A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25 percent of the reporting company’s ownership interests. For reporting companies, correctly identifying all beneficial owners under this definition will be critical.
Failure to report complete or updated BOI to FinCEN may result in a civil or criminal penalties, including fines of up to $500 for each day that the violation continues. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
Analyzing whether a business is required to report under the CTA, and if so, identifying which individuals within the organization must be identified as a beneficial owner, may be a nuanced exercise. The corporate attorneys at Chico & Nunes have been preparing for the rollout of these new reporting requirements to help assist our clients in navigating this new law.
