by Quinn F. Roy, Principal
What Business Owners Need To Know
You’ve probably already heard the rumblings about the new reporting requirements for businesses under the federal Corporate Transparency Act (“CTA”). The CTA took effect on January 1, 2024. If you own or operate a business that was formed prior to 2024, you have until the end of this year to determine if you’re subject to the CTA and make the required filing. If your business was formed in 2024, and you’re not otherwise exempt from the CTA’s requirements, you must make the required filing within 90 days of receiving actual or public notice that the company’s formation/registration is effective. Read on for more details …
The CTA is intended to combat and prevent money laundering and other illicit activities by establishing a database of companies’ beneficial ownership information to be used for law enforcement purposes. Certain business entities are now required to file a Beneficial Owner Information Report (“BOI Report”) with the U.S. Department of Treasury Financial Crimes Enforcement Network (“FinCEN”). The BOI Reports are to be maintained on a secure system accessible only by federal and state law enforcement agencies (and not available to the public through Freedom of Information Act requests). There are civil penalties (up to $500.00 per day) and criminal penalties (up to $10,000.00 or 2 years imprisonment) for willfully failing to file on time or submitting false information.
Business owners are already challenging the constitutionality of the CTA in court. On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01488 (N.D. Ala.), a federal district court in Alabama ruled that the Corporate Transparency Act was unconstitutional and enjoined the federal government from enforcing the law against the plaintiffs in that particular case. The Department of Treasury is now appealing that decision. Pending further court orders or guidance from FinCEN, all other companies who are required to file BOI Reports should continue to view the CTA as in full force.
If you own or operate a business, you should evaluate whether your company is subject to the CTA and, if so, prepare to file a BOI Report in the required timeframe.
Does my Company have to file a BOI Report?
Reporting Companies
Your first step is to determine whether your company meets the definition of a “reporting company” under the CTA. To be a reporting company, your company must have been a) created by the filing of a document (such as Articles of Incorporation or Articles of Organization) with a secretary of state or any similar office under the laws of a U.S. state or Indian tribe, or b) created by the laws of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or similar office of the State or Indian tribe. If your company does not meet the above criteria, it is not required to file a BOI Report. If your company meets the above criteria, it must file a BOI Report unless it qualifies for an exemption.
Exemptions from the CTA
Some types of companies are exempt from the CTA requirements, even if they would otherwise meet the base criteria of a reporting company outlined above. In general, exempt entities are those that are already required to report beneficial owner information to the federal government through other means, such as banks, credit unions, insurance companies, state-licensed insurance producers, public utilities, public accounting firms, brokers or dealers in securities, tax-exempt entities, and large operating companies. The large operating company exemption applies to companies that (a) employ more than 20 employees on a full-time basis in the U.S., (b) filed a federal income tax return in the U.S. in the previous year showing more than $5 million in gross receipts or sales, and (c) operate and have a presence at a physical address in the U.S. Information about the exemptions which can be found at: https://www.fincen.gov/boi-faqs#C_2
If your company qualifies for any of the CTA exemptions, it is not a “reporting company” and it does not have to file BOI Reports.
What information must a Reporting Company provide?
The CTA requires a reporting company to provide the following information in its BOI Report:
Information regarding the Reporting Company:
- Full legal name of the company
- Trade name, if applicable
- U.S. address of the principal place of business
- Jurisdiction of formation
- Taxpayer Identification Number of the company
Information regarding each Beneficial Owner of the Reporting Company:
(and, for reporting companies formed after January 1, 2024, the company applicant)
- Full Legal Name
- Date of Birth
- Current Address
- Unique identifying number and issuing jurisdiction from a U.S. passport or State Driver’s License
- A copy of the identification document
The CTA defines a beneficial owner is any individual who directly or indirectly exercises substantial control over the reporting company OR who owns or controls at least 25% of the ownership interests of a reporting company. Consequently, a reporting company may have to provide information regarding multiple senior officers or other individuals who do not have an ownership interest, but who have authority to make important decisions for the company.
A company applicant consists of the individual(s) who physically or electronically filed the Articles of Organization/Articles of Incorporation for the company, or directed or controlled the filing. (No more than two company applicants can be reported.)
FinCEN ID Numbers
Each individual who would otherwise be required to provide beneficial owner (or company applicant) information to a reporting company has the option of obtaining their own unique FinCEN ID Number from FinCEN. That would allow a reporting company to use the FinCEN ID number for that individual in its BOI Report in place of the specific information for that individual. FinCEN ID Numbers are also available to reporting companies. You can apply for a FinCEN ID Number on the FinCEN website.
When must a Reporting Company file its initial BOI Report?
For reporting companies that were formed prior to January 1, 2024, the CTA requires the BOI Report to be submitted to FinCEN by January 1, 2025.
Given the recent developments in the Alabama case, companies in this category should prepare to make their BOI Reports, but delay filing with FinCEN until the January 1, 2025 filing deadline is near, pending further information from the federal courts or FinCEN on the validity of the CTA.
For reporting companies that were recently formed (on or after January 1, 2024), the CTA requires the company’s BOI Report to be filed within ninety (90) days of the date the entity received actual or public notice that the company’s formation or registration was effective. For Maryland entities, we interpret the law to mean that the report for newly formed entities must be filed within 90 days of the date of the Maryland State Department of Assessments and Taxation (“SDAT”) letter confirming that the company’s Articles of Organization/Incorporation were accepted for filing. However, to be conservative, we recommend filing within 90 days of the effective date of filing indicated in the SDAT confirmation letter.
To be clear, with regard to companies formed after January 1, 2024, reporting companies should file their BOI Report with FinCEN within the 90 day timeframe specified above (notwithstanding the pending court cases).
For reporting companies formed after January 1, 2025, the initial BOI Report must be filed within 30 days of receiving actual or public notice that the company’s formation is effective.
Updates to BOI Reports
Reporting companies are required to update and correct information in previously filed BOI Reports (such as changes in beneficial ownership, addresses, trade names, etc.) to FinCEN within 30 days of such change. Individuals who obtain FinCEN ID Numbers must also update and correct information previously provided to FinCEN within the 30 day timeframe.
How does a Company file a BOI Report?
BOI Reports are filed electronically through the FinCEN website at www.FinCen.gov/boi. There is no filing fee for a BOI Report. Helpful information concerning CTA compliance is also available on the FinCEN website.
We will continue to monitor developments regarding the CTA and provide updates as they occur. Please feel free to contact us if you would like assistance in evaluating your company’s CTA compliance requirements.
The information in this article is informational in nature and should not be taken as formal legal advice. You should consult an attorney for advice regarding your individual situation.
ALL BUSINESS.™