Tag: CORPORATE TRANSPARENCY ACT

An Important Heads Up

1. What is the Corporate Transparency Act?

   The Corporate Transparency Act authorizes the Financial Crimes Enforcement Network to collect certain identifying information about the beneficial owners and company applicants. The Act applies to domestic corporations, LLCs, and any entity created by the Secretary of State (or similar office) in any state or tribal jurisdiction, as well as foreign entities registered to do business in any state or tribal jurisdiction.

2. Who Must Report?
   
   
   • All domestic corporations, LLCs, and other entities created by filing with a Secretary of State or similar office
   • All foreign corporations, LLCs, and other entities created under the laws of foreign countries and registered in any state or tribal jurisdiction to do business.


3. Who is Exempt from Reporting?

   There are several entities exempt from reporting, including but not limited to:

   • Large Operating Company
   
   
   • A large operating company is an entity that:
   • Employs more than 20 full-time employees (30+ hours per week)
   • Conducts operations at a physical office within the United States
   • Filed a US federal income tax or information return for the previous year with more than $5,000,000 in gross receipts or sales, net of returns and allowances, excluding gross receipts or sales from sources outside the United States.
   • Tax-exempt entity (described in Sec. 501(c) and exempt from tax under Sec. 501(a) of the IRC)
   • Inactive entity (as defined)
   • Securities reporting issuer
   • Governmental authority
   • Bank
   • Credit union
   • Depository institution holding company
   • Money services business
   • Broker or dealer in securities
   • Securities exchange or clearing agency
   • Other Exchange Act registered entity
   • Investment company or investment adviser
   • Venture capital fund adviser
   • Insurance company
   • State-licensed insurance producer
   • Commodity Exchange Act registered entity
   • Accounting firm (if registered in accordance with Sec. 102 of the Sarbanes-Oxley Act of 2002)
   • Public utility
   • Financial market utility
   • Pooled investment vehicle
   • Entity assisting a tax-exempt entity
   • Subsidiary of certain exempt-from-reporting entities
   
   
4. What Must be Reported?

   Beneficial owners must be reported. A beneficial owner is any individual who owns or controls at least 25% of the ownership interest or, directly or indirectly, exercises substantial control over the reporting company. The individual has substantial control if any of the following apply:

   • Serves as a senior officer of the reporting company
   • Has authority to appoint or remove any senior officer or majority of the directors
   • Directs, determines, or has substantial influence over important decisions, including:
   • Nature, scope, and attributes of the business
   • Reorganization, dissolution, or merger
   • Major expenditures or investments, issuance of equity, debt, operating budget
   • Selection or termination of business lines or ventures or geographic focus
   • Compensation and incentives for senior officers
   • Entry into or termination of significant contracts
   • Amendments to governance documents
   • Has any other form of substantial control over the reporting company

   Company applicants must be reported. Company applicants may be:

   • Individuals who directly file the document that creates the reporting company
   • Individuals who are primarily responsible for directing or controlling the filing of those documents.
   
   
5. Where is the Information Reported?

   The information is reported on the Financial Crimes Enforcement Network and can be found at https://fincen.gov/boi. The website also provides a large amount of other helpful information.

6. When is Reporting Required?
   
   
   • Companies created or registered with a Secretary of State or similar office before January 1, 2024, must report beneficial owner information between January 1, 2024 and December 31, 2024. Company applicant information is not required to be reported.
   • Companies created or registered with a Secretary of State or similar office on or after January 1, 2024, must report beneficial owner information and company applicant information within 90 days of creation or registration.
   • ALERT: In certain situations, reporting must be updated.
   
   
7. Why Report?

   If the requirements are met, reporting is required. Failure to do so can result in substantial civil and criminal penalties.

   The Act’s intent is to help prevent illicit activity such as money laundering, financing of terrorism, tax evasion, fraud, and other illegal activity. It also promotes corporate transparency and accountability.

This blog does not cover all aspects of the Corporate Transparency Act. Please see the official documentation or consult a legal professional for more detailed information. It is highly recommended that companies seek legal advice for assistance and help in understanding and complying with these requirements.