If you are a small business, you should be aware of the upcoming January 1, 2024, Corporate Transparency Act (CTA) requirements, part of the Anti-Money Laundering Act of 2020 (AML Act). The CTA requires most small corporations and limited liability companies, referred to in this article as a “Reporting Company,” to disclose to the federal government the identity of “Beneficial Owners,” which are individuals who either directly or indirectly: (1) exercise substantial control over the Reporting Company, or (2) own or control at least twenty-five (25%) of the Reporting Company. The report is referred to as Beneficial Ownership Information, also known as “BOI.”
What is the Deadline for Entities to Report?
Existing entities will have until January 1, 2025, to meet the reporting requirements with FinCEN. Entities formed after January 1, 2024, initially had a thirty (30) calendar day reporting requirement that was amended pursuant to the Final Rule published on November 30, 2023, extending the reporting timeline from thirty (30) calendar days to ninety (90) calendar days for 2024, only.
Who is Required to Report as a Reporting Company?
There are two types of Reporting Companies:
- Domestic Reporting Companies: corporations, limited liability companies, and any other entities created by filing Articles with the Secretary of State or any similar office in the United States.
- Foreign Reporting Companies: entities formed under the law of a foreign country that is registered to do business in the United States by filing a similar document as referenced above.
There are twenty-three (23) types of entities that are exempt from these requirements, but entities should determine whether they fall into this very limited list. Some examples of exempt entities are banks, credit unions, money service businesses, brokers or dealers in securities, insurance companies, accounting firms, public utility, and tax-exempt entities. For a full list please contact our office or review FinCEN material.
A Reporting Company will need to report:
- Its legal name;
- Any trade names, “doing business as” (DBA) names, or “trading as” (TA) names;
- The current street address of its principal place of business.
- Its jurisdiction of formation; and
- Its Taxpayer Identification Number.
Who is a Beneficial Owner that the Reporting Company Must Disclose?
Beneficial Owners are individuals who either directly or indirectly: (1) exercise substantial control over the Reporting Company, or (2) own or control at least twenty-five (25%) of the Reporting Company ownership interests.
Substantial Control is defined in four ways:
- Senior Officer: president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function;
- Authority to Appoint or Remove: An individual who has the authority to appoint or remove officers or a majority of directors of the Reporting Company;
- Important Decision Maker: includes decisions about Reporting Company:
- Finances; and
- Structure.
- Any other form of substantial control.
Ownership Interest is an individual who holds ownership rights in the Reporting Company such as shares/stock, membership units, voting rights, and any other mechanism used to establish ownership in the Reporting Company.
The following are exceptions from the reporting requirement:
- Minor child;
- Nominee, intermediary, custodial, or agent;
- Employee;
- Inheritor; and
- Creditor.
Generally, your accountant and lawyer would not qualify as Beneficial Owners; however, such determination is based on a fact specific assessment of the type of work they are doing. Additionally, a board of directors, partnership representative, or tax matters partner is not automatically a Beneficial Owner, and it will depend on whether that individual meets the two requirements. A Beneficial Owner must be an individual.
For each Individual who is a Beneficial Owner, a Reporting Company will have to provide:
- The individual’s name;
- Date of birth;
- Residential address; and
- Any identifying number from an acceptable identification document, such as a passport or U.S. Driver’s license, and the name of the issuing state or jurisdiction of the identification document, which almost must include an image of the document.
What is a Company Applicant?
Of initial note, Company Applicant only applies to Reporting Companies created or first registered on or after January 1, 2024. There are two types of Company Applicants:
- The individual who files the documents that registers the company (Secretary of State); and
- If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
As an example, our office would be a Company Applicant if we filed the Articles of Incorporation for your entity.
For each Individual Applicant, they must provide:
- The individual’s name;
- Date of birth;
- Address and;
- Any identifying number from an acceptable identification document such as a passport or U.S. Driver’s licenses, and the name of the issuing state or jurisdiction of the identification document, along with an image of the document.
When are Modifications to the Reported Information Required?
Any updates to the Beneficial Ownership Information must be reported to FinCEN within thirty (30) calendar days after the change occurs. These changes include updating addresses and changes to identification documents, such as number changing (including proof of new identification document). Failure to comply with required reporting and/or update information could result in civil and criminal penalties.
There are no annual reporting requirements beyond the initial reporting information.
May Reporting Companies Use a Third-Party Service Provider?
Reporting Companies may use third-party service providers, including law firms, to submit beneficial ownership information reports through FinCEN’s E-Filing system and/or an Application Programming Interface (API).
If you would like guidance or have questions about the Corporate Transparency Act or Beneficial Ownership Reporting requirements, the attorneys at Ogborn Mihm Quaintance, PLLC can help. Contact us today online or call (605) 339-1000.