What entities are required to comply with the Corporate Transparency Act reporting requirement?
This update is to make sure you are aware of a new reporting requirement which goes into effect January 1, 2024 and may affect you. Please read this if you are the owner or manager of one or more of: a limited liability company, limited partnerships, statutory trusts, statutory foundations or any similar entity created by the filing of a document with a secretary of state. The reporting requirement applies both to companies in existence on January 1, 2024 as well as companies formed after January 1, 2024.
The requirement is that companies in the US are required to report Beneficial Ownership Information ("BOI") which is a report about the individuals who own or control the company to the Financial Crimes Enforcement Network, a department of the U.S. Department of Treasury. Reported information is not available to the general public but is available to all federal and state law enforcement agencies.
Domestic entities that are not created by the filing of a document with the secretary of state or similar office are not required to report under the Corporate Transparency Act. Those entities are general partnerships, sole proprietorships, trusts and certain limited liability partnerships.
Foreign companies required to report include corporations, LLCs, or any entity formed under the law of a foreign country and registered to do business in any US state by filing a document with the secretary of state or similar office.
Are there any exemptions from the filing requirements?
There are 23 exemptions, including publicly traded companies, banks, credit unions, securities brokers, public accounting firms, tax-exempt entities and certain inactive entities. Many of these types of entities are already heavily regulated by the government and already disclosed their ownership information to a government authority.
Who is a beneficial owner?
A beneficial owner is any individual who directly or indirectly:
- exercises substantial control over a reporting company;
- owns or controls at least 25 percent of the ownership interests of a reporting company
Substantial control: if he/she directly exercises substantial influence over major decisions of the reporting company and includes any senior offices of the company, regardless of formal title, even if they have no ownership interest in the reporting company. There are some exclusions for individuals who are identified as beneficial owners.
For entities created before January 1, 2024 the company's applicants, which is the person who files the document that creates the document that creates the reporting company and the person primarily responsible for directing or controlling the filing of the creation of the reporting company do not need to be on the report.
For entities created after January 1, 2024 the company's applications must be reported on the beneficial owner report. For example, the the owner directs an assistant to file a business entity, both the owner and the assistant must be reported as company applicants.
Further details on the categories can be found on this beneficial owner compliance guide website.
When must companies file?
There are different filing timeframes depending on when an entity is created. For entities created before January 1, 2024 the initial report is due before January 1, 2025. For entities created January 1, 2024 the initial report is due within 90 days of creation. For entities created on or after January 1, 2025 the initial report is due within 30 days of creation.
Ongoing Reporting Obligations.
After a report in filed if there is a change to the information about the reporting company or its owners: for example, a new business name or change in owners, a sale, gift, death or bequest that changes the ownership interest threshold of 25 percent, a change to the owner's address, name, or identifying number must filed an updated beneficial owner report within 30 days after the change occurred.
What sort of information is required to be reported?
Companies must report the following:
- full name of reporting company
- trade name or doing business name
- business address state or tribal jurisdiction formation
- IRS Taxpayer ID (TIN or EIN)
Beneficial owners must include:
- full legal name
- date of birth
- current street address
- identifying number on US passport, state driver's license
- other identification document issued by state or local government (i.e. tax ID number)
What if I don't comply?
The failure to submit a complete initial or updated report within the specified time frame may result in civil or criminal penalties including $500.00 for each day the violation continues and including imprisonment for up to two years and a fine of up to $10,000. Penalties start on the day the required information becomes known or the inaccuracy in a previous filed report is discovered. Senior officers of an entity that fail to file a report may be held accountable for the failure.
IMPORTANT NOTICE TO ALL CLIENTS: YOU ARE RESPONSIBLE FOR DETERMINING YOUR COMPLIANCE OBLIGATIONS AND FOR THE TIMELY FILING OF ALL INITIAL AND UPDATED REPORTS ON BEHALF OF YOUR COMPANIES. THE LAW OFFICES OF GAYLA K. AUSTIN IS NOT RESPONSIBLE FOR DETERMINING OR MONITORING COMPLIANCE FOR ENTITY CLIENTS UNLESS EXPRESSLY ENGAGED TO DO SO.
If you need assistance determining whether your entity is required to report or if you have questions about the information to report please contact:
Law Offices of Gayla K. Austin
Email: [email protected]
This communication is meant to be general and for information only and I recommend that you consult with competent legal counsel regarding your own requirements.