By: Matthew Schumacher
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is part of the National Defense Authorization Act of 2021. Reporting obligation began to take effect on January 1, 2024. All “Beneficial Owners” of a Company are required to file a Beneficial Ownership Information (BOI) Report. These reports are to be submitted to the Financial Crimes Enforcement Network (FinCEN) to aid in the government’s efforts to reduce terrorist financing, money laundering, and other illicit activities performed through a company.
Which Companies are required to report their Beneficial Owners?
A rule of thumb to go by is that every entity which had to file a formation document with the Secretary of State will need to submit a BOI Report. Think LLCs, PLLCs, Corporations, and Limited Partnerships. This doesn’t include sole proprietorships or general partnerships in California because these business forms don’t require a filing with the California Secretary of State. (This rule may differ depending on the state of formation, such as a general partnership formed in Delaware).
There are certain exceptions that may apply to a Company that would otherwise be required to report. Bend Law Group would be happy to schedule a consultation to see if your company fits under one of these exceptions.
When does my Company need to provide FinCEN with its BOI Report?
Companies formed before January 1, 2024, have until December 31, 2024 to submit their BOI Reports.
Companies formed between January 1, 2024, and December 1, 2024 will have 90 days from the date of formation to submit their BOI Reports.
Lastly, companies formed after January 1, 2025, will have 30 days from the date of formation to submit their BOI Reports.
Who are a Company’s Beneficial Owners?
There are two tests to determine whether or not an individual affiliated with a Company is going to be considered a “Beneficial Owner”
- Someone who owns or controls 25% or more of the ownership interest of the Reporting Company (this is determined on a fully diluted basis).
- Someone who “exercises substantial control” over a company.
The determination of whether or not an individual “exercises substantial control” over the reporting company is an open-ended question. Please reach out to Bend Law Group for a consultation to determine if someone (whether they have equity ownership in the Company or not) is exercising substantial control over the Reporting Company.
What needs to be disclosed?
The following information about a Beneficial Owner will need to be disclosed to FinCEN:
- The Beneficial Owner’s full legal name
- Date of Birth
- Current Residential Address
- A copy of their state issued ID, their state issued driver’s license, their US passport, or their foreign passport.
What happens if my trust is an owner of the Company?
FinCEN seeks to identify the individual who own the reporting company – whether that be directly or indirectly through a trust.
In every instance, the trustee(s) who have control over the disposition of trust assets will be the individuals who must be disclosed in a BOI Report. In limited circumstances, the grantor/settlor or even the beneficiaries can be considered “Beneficial Owners” under the CTA. Bend Law Group could certainly make this assessment for you.
Does anyone else need to be included in my Company’s BOI Report?
For entities that were created on or after January 1, 2024, that entity’s “Company Applicant” will need to be included in the BOI Report.
A Company Applicant is the individual who actually submitted the formation documents of the entity to the Secretary of State. That means the Company Applicant could be one of the Company’s current owners, a trusted friend that helped you set up the Company, or even one of the attorney’s already here at Bend Law Group!
What happens if my Company doesn’t file its BOI Report by the deadline?
A company that fails to file within the deadline may be subject to steep penalties for CTA noncompliance.
This includes:
- A civil penalty of $500 per day that the BOI Report remains unsubmitted after the deadline
- A fine of up to $10,000 or imprisonment for up to two years upon conviction for individuals involved with willing failing to file or willfully filing inaccurate information.
- Failing to file in connection with illegal activity (ex. Money laundering) involving more than $100,000 in a 12-month period would subject the company to a $500,000 penalty and up to 10 years in prison for the individuals involved.
Hasn’t the CTA been held unconstitutional though?
In March 2024, an Alabama Federal District Court Judge found that congress exceeded its foreign affairs, commerce, and tax powers in enacting the CTA. However, the Court limited enjoining enforcement of the CTA to the Plaintiffs in the matter – those small business that are associated with the National Small Business Association (NSBA).
This means that FinCEN still intends on enforcing penalties on all non-compliant companies that are not members of the NSBA. Further, FinCEN has already begun to appeal the decision as it applies to those NSBA members.
Allow Bend Law Group to Handle your CTA BOI Reports
Bend Law Group is more than happy to prepare and submit these BOI Reports for both existing and new clients. Reach out to Bend Law Group for a quote!
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.