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What Small Business Must Know About The Corporate Transparency Act

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Small business owners, you need to know this information. Grab a beverage and read on.

What’s the Corporate Transparency Act

(and why should I care)?

The Corporate Transparency Act (CTA), set to take effect on January 1, 2024, mandates that all reporting companies must file specific Beneficial Ownership Information reports (BOIs) to the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN). This is a United States law.

The CTA applies to small private companies and requires them to comply to FinCEN rules concerning individuals who have significant equity or control within these companies, referred to as “beneficial owners.”  The CTA aims to enhance the oversight of potential malicious actors who might conceal their ownership stakes in reporting companies, thereby reducing the risk of them engaging in illegal activities that may have national security implications. There’s a useful compliance guide online in many different languages.

What’s a Reporting Company?

A reporting company refers to any entity, such as a corporation or LLC, that was or is created in the United States (or abroad if registered to operate in the United States) by submitting necessary documents to a Secretary of State (such as the New York Department of State), a tribal government office, or similar office. This includes foreign reporting companies formed under the law of a foreign country that are registered to do business in any State or tribal jurisdiction. If a company isn’t created by a State filings (for example, a trust), it’s not subject to the CTA reporting requirements.

What Companies May Be Exempt?

Certain companies don’t have to comply. Those that are exempt from reporting requirements are:

  • Companies that:
    • have more than 20 full-time U.S. employees;
    • reported more than $5 million annual revenue; and
    • have an operating presence at a physical location in the United States.
  • Nonprofits.
  • Political organizations and certain tax-exempt trusts.
  • Public companies.
  • Companies already subject to similar reporting regulations (e.g., banks, insurance companies, and registered investment companies and possibly their subsidiaries).

What Information Must You Report?

A reporting company must provide certain basic information including its legal name; trade or d/b/a names; current street address; formation jurisdiction; and federal EIN. The BOI also must identify each beneficial owner.  The information reported on the beneficial owners must include their:

  • full legal name;
  • date of birth;
  • current residence address; and
  • a unique identifying number from an acceptable identification document, including an image of the document (e.g., valid U.S. passport, State or local government ID, or driver’s license).

When Must You Make the Report?

That depends on when you’re company came into existence. It’s pretty straightforward, and here’s the guidance.

  • Established Companies are those formed prior to January 1, 2024, and they have a year from 1/1/24 to submit their BOI;
  • New Companies formed between January 1, 2024 and January 1, 2025 have 90 days from formation date to submit their BOI;
  • New Future Companies formed after January 1, 2024 have only 30 days from their formation date to submit their BOI.

    Who’s a Beneficial Owner?

    A beneficial owner is an individual who either (1) exercises “substantial control” over a reporting company or (2) who owns or controls at least 25% of the ownership interest. A beneficial owner doesn’t include someone whose control or economic benefit comes solely from their employment position or individuals whose interest was created by way of an inheritance.

    What The Heck’s An Applicant?

    An applicant is either the individual directly submitting the BOI or the person primarily responsible for directing the filing of BOIs. For companies formed prior to January 1, 2024, there’s no need to worry about the applicant.

    For newly-formed companies, however, they’ll need to provide BOI reports for their applicants. In fact, accountants, attorneys, and paralegals may be considered a company’s applicant for CTA purposes.

What About Changed Circumstances?

If the information you shared in the BOI changes, you need to update the BOI within 30 days. This means changes about your business as well as changes about your beneficial owners, including if they move homes.  Here are some examples from FinCEN:

  • Any change to the information reported for the reporting company, such as registering a new business name.
  • A change in beneficial owners, such as a new CEO, or a sale that changes who meets the ownership interest threshold of 25 percent.
  • Any change to a beneficial owner’s name, address, or unique identifying number previously provided to FinCEN. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.

Penalties for Non-Compliance

The CTA imposes both civil and criminal penalties. Providing false or fraudulent information or failing to report or update the Beneficial Ownership Information may result in criminal fines up to $10,000 and a maximum of two years in prison.  Owners and high-level management can be held criminally liable in some circumstances. Violators also may incur a civil penalty up to $500 each day the violation continues.

However, individuals will be exempt from penalties if they initially submitted an inaccurate report but voluntarily and promptly provided a corrected report within 30 days.

Now What?

First, for our small business owner friends, mark your calendars for January 1, 2024 and plan to file your initial BOI.

We’re told there will be ongoing guidance issued from FinCEN, so bookmark the website.

We’re also told the information provided to FinCEN will be housed confidentially and only certain government and law enforcement agencies will have access. Banks may have access with your consent.

And we’ll always be here to guide you, if you desire. If you have questions about this law or other laws affecting small business, please give us a ring at 716.839.9700 or send over an email to info@coppolalegal.com. We’re here to help.

Lisa Coppola

Written by Lisa Coppola

Founder of The Coppola Firm

Lisa A. Coppola, Esq. understands the challenges her clients face, whether they’re starting a new business, taking their existing operations in a new direction, or facing a claim or threat.

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