Background
In January 2021, in response to concerns about money laundering and terrorism (among other things), Congress passed the Corporate Transparency Act (CTA), which will ultimately create a confidential database of “beneficial owners” of private companies for use by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Beginning January 1, 2024, most legal entities in the United States will be required to disclose certain information regarding its owners and officers to FinCEN.
Who is Required to File?
The disclosure obligations apply to all entities (corporations, registered partnerships, and limited liability companies) formed under the laws of a U.S. state as well as foreign entities that are registered to do business in the U.S, unless an exemption applies. Exempt entities include those that (1) have over 20 employees and exceed $5 million in gross receipts; (2) are dormant and have no assets; (3) are publicly registered under the Securities Act of 1934; (4) are otherwise regulated under existing laws (e.g., banks, credit unions, insurance companies, registered commodities brokers, public accounting firms that have registered under Sarbanes-Oxley, public utilities, etc.) and their subsidiaries; (5) are governmental entities; or (6) are organized for nonprofit, charitable, or political purposes.
What information must be filed?
Every such “reporting company” is required to disclose information for each “beneficial owner” of the entity, which is defined as any individual who, directly or indirectly (including through intermediary entities), either (i) exercises substantial control over the entity or (ii) owns or controls 25% or more of the entity’s equity. An individual exercises “substantial control” if they (1) serve as a senior officer of the company; (2) have authority over the senior officers or majority of the board of a company; (3) have substantial influence over the company’s important decisions; or (4) have any other type of substantial control over the company.
Each company must report the (i) full legal name; (ii) date of birth; (iii) current residential or business physical address; and (iv) a unique identifying number from an unexpired passport or state driver’s license of each such beneficial owner.
In addition, entities created after January 1, 2024 are also required to report the same information for “company applicants,” who are the individuals who were responsible for filing (or directed the filing of) the documents creating the entity. Accordingly, if a lawyer or accountant assists in filing your entity documents after January 1, 2024, their personal information will also need to be reported.
When do I have to file?
Entities in existence prior to January 1, 2024 have until January 1, 2025. Entities created after January 1, 2024 have only a thirty (30) day window to file the required information following the date the entity is created.
How do I file?
The required information will be submitted by completing a beneficial ownership information report (the BOIR Form) and submitting it through an online portal on the FinCEN website. The final BOIR Forms are still in the process of being approved but should be finalized prior to the January 1, 2024 implementation date.
What if I don’t file?
Failure to comply with the requirements, or providing false or fraudulent reports, may result in civil fines of $500 a day or may subject the violators to the criminal penalties of a $10,000 fine or 2 years in jail.
What steps should I take now?
All companies should first evaluate whether or not they are a “reporting company” that is required to file (the vast majority of companies will be). Next, each company should begin compiling information about its beneficial owners and adopt a plan of action to submit the required information. The attorneys at Kroger Gardis & Regas can assist in evaluating whether you are a “reporting company” as well as identifying beneficial owners. We can also assist with submitting the BOIR Forms. Please contact Ted Nolting at twn@kgrlaw.com or (317) 777-7459 with questions.
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