Corporate Transparency Act

Your companies may be obligated to report information regarding certain of the company’s owners to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (“CTA”).

Below is a VERY BRIEF overview of regulations (which are lengthy and detailed) issued under the CTA.

Additional information is also available at FinCEN’s website (See links below).

WHAT COMPANIES HAVE TO REPORT? 

A company may need to report if it:

1. is a corporation, a limited liability company or was otherwise created in the U.S. by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe; or
2. is a foreign company registered to do business in any U.S. state or Indian tribe by such a filing

AND IS NOT subject to one of 23 Specific Exemptions, some of which are described (generally) below:

1. Companies in highly regulated industries (brokers/dealers in securities, banks and state-licensed insurance producers)
2. Tax Exempt Entities
3. Large Operating Companies (must have at least 20 full-time employees employed in the U.S. and satisfy 4 other requirements)
4. Inactive Entities (must satisfy 6 requirements)

WHAT HAS TO BE REPORTED? 

Information regarding beneficial owners, which term is (generally) defined as any individual who, directly or indirectly:

• Exercises substantial control over the company;

or

• Owns or controls at least 25 percent of the ownership interests of the company.

WHEN ARE FILINGS DUE? 

1. Companies created or registered to do business before 1/1/24 must file by 1/1/25
2. Companies created or registered to do business on or after 1/1/24 and before 1/1/25 must file within 90 days after the earlier of: (i) receiving actual notice that the company’s creation or registration is effective; or (ii) a secretary of state or similar office first provides public notice of the company’s creation or registration
3. Companies created or registered to do business on or after 1/1/25 must file within 30 days after the earlier of: (i) receiving actual notice that the company’s creation or registration is effective; or (ii) a secretary of state or similar office first provides public notice of the company’s creation or registration

WHAT IF THE COMPANY FAILS TO REPORT OR REPORTS INCORRECT INFORMATION? 

Among other things:

1. Civil penalties of up to $500 for each day that the violation continues
2. Criminal penalties including imprisonment for up to 2 years and/or a fine of up to $10,000
3. Senior officers of a company that fail to file may be held accountable for any failure
   

NOTE

1. This is a new requirement which means, among other things, that there will likely be unforeseen concerns that will need to be addressed.
2. Concern has been expressed as to who will have access to the reported information. According to FinCEN’s website, FinCEN will permit: (i) federal, state, local, and tribal officials, and certain foreign officials to obtain information for authorized activities related to national security, intelligence and law enforcement; (ii) financial institutions to access information in certain circumstances, with the consent of the company; and (iii) regulators of those financial institutions will have access to the information when they supervise the financial institutions.
3. There have been scams relating to the CTA (such as):
   1. Correspondence requesting payment. There is NO fee to file directly with FinCEN.
   2. Correspondence asking the recipient to click on a URL or to scan a QR code.
   3. Correspondence referencing a “Form 4022” or an “Important Compliance Notice.”
   4. Correspondence or other documents referencing a “US Business Regulations Dept.” There is no government agency by this name.
4. In the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court entered a judgment that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining FinCEN from enforcing the CTA against the plaintiffs. The case is being appealed. While this litigation is ongoing, FinCEN will continue to implement the CTA (except against the plaintiffs in that action – the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)).
5. Legislation was recently introduced by Senator Tommy Tuberville (R-AL) and Representative Warren Davidson (R-OH) to repeal the CTA.
6. As a result of challenges to the CTA, companies may want to delay filing until closer to the required deadlines.

Additional information is available at FinCEN’s website https://fincen.gov/boi and https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf. You can also subscribe for future guidance documents at https://www.fincen.gov/news/news-releases/fincen-announces-launch-fincen-updates-e-mail-subscription-news-service. 

The foregoing is a VERY BRIEF summary of certain requirements of the CTA. This summary does not provide a complete analysis of the CTA or any of the provisions thereof. Reference should be made to the CTA for a complete understanding thereof.