The federal Corporate Transparency Act (“CTA”), enacted by Congress on January 1, 2021, established new ownership disclosure and reporting requirements for most small and medium sized U.S. companies (“Reporting Companies”), including both existing and newly created companies. The deadline for filing the required report is January 1, 2025, but companies should not wait to review CTA requirements and make this filing – there may be corporate steps that they have to take prior to filing. The CTA’s requirement to disclose the owners of companies is designed to assist U.S. authorities in fighting tax evasion, organized crime, terrorism financing and money laundering. But the impact will be felt by law abiding companies of all industries – including broadcasters and telecommunications companies.
The CTA requires that Reporting Companies file with the Financial Crimes Enforcement Network of the Treasury Department (“FinCEN”), personal identification information on the “beneficial owners” of their company at the time of the company’s formation. The CTA also requires that such information be updated upon any change in beneficial ownership.
Who Needs to Report?
The CTA refers to companies that are required to file reports as “Reporting Companies.” For the purposes of the CTA, a Reporting Company is defined to include any corporation, limited liability company, or other similar entity that is created by the filing of a document with the secretary of a state or similar office, or is formed under the laws of a foreign country and registered to do business in the U.S. by the filing of a document with the secretary of a state or similar office. So, sole proprietorships and certain trusts would not meet this definition. In addition, applicants for new entities that meet the definition of Reporting Company need to report. For the purposes of the CTA, “applicants” include the individual who directly filed the document that created or first registered a domestic or foreign Reporting Company, and the individual who was primarily responsible for directing or controlling the filing of the creation or first registration document.
The CTA contains a number of exceptions from the reporting requirement. These exceptions include any entity that employs more than 20 people and has at least $5 million in annual revenue and a physical presence in the U.S. In addition, tax-exempt organizations do not need to comply with the reporting requirements. Also subject to exceptions are publicly traded companies, “inactive” companies, banks, insurance companies, certain registered investment companies, investment advisors and registered public accounting firms.
What Information is Required to Be Reported?
The information that must be reported includes the identity of each beneficial owner of the Reporting Company, or each applicant to form a new Company. A “beneficial owner” is defined generally as an individual who, directly or indirectly, exercises substantial control over a Reporting Company or owns or controls at least 25 percent of the ownership interests of the Reporting Company. This reported information includes full legal names, dates of birth, residential or business addresses, and an identification number (such as passport or driver’s license). The Reporting Company must also disclose information about the Company itself, including IRS Taxpayer Identification Number (“TIN”) (including an Employer Identification Number (“EIN”)), while foreign Reporting Companies without a U.S. TIN must provide tax ID issued by their foreign jurisdiction.
Who Has Access to the Reported Information?
The Treasury Department states that the reported information will be maintained in a secure federal database. The information will be treated as confidential and will not be made available to the public. The information may only be disclosed to federal and state law enforcement agencies under certain circumstances for national security, intelligence, or law enforcement purposes. Foreign law enforcement may also request information through the appropriate channels. Financial institutions, with the consent of the Reporting Company, will be able to access the database for customer due diligence requirements imposed by state and federal laws. The Treasury Department may also obtain access to the information for tax administrative purposes.
When and How are Reports Filed?
Fillings must be made through the BOI E-Filing System. Filing deadlines depend on when the Reporting Company was created. Domestic Reporting Companies created before January 1, 2024, and any foreign entity that became a Reporting Company before January 1, 2024, must file by January 1, 2025. Domestic Reporting Companies created between January 1, 2024 and January 1, 2025, and any foreign entity that becomes a Reporting Company after January 1, 2024, must file within 90 days of registration.
What if My Company Fails to Properly File a Required Report?
Under the CTA, companies that fail to file a required report may be subject to both civil and criminal penalties. Any party that fails to comply with reporting requirements or willfully files false information will be liable for fines of not more than $500 for each day that the violation, not to exceed $10,000, or two years of imprisonment, or both. There is a safe harbor for individuals who believe that a submitted report contains inaccurate information, and then voluntarily and promptly submit a corrected information report.
What Should I Do Now?
-Assess the Facts: Entities should evaluate whether they meet the criteria of a “Reporting Company.” If an entity meets the criteria for reporting, then further steps should be taken.
-Prepare for and Gather Information: Entities should gather and maintain the information needed for reporting. This may require changes to the entity’s corporate by-laws, in connection with obtaining information about the beneficial owners, or authorizing the filing.
-Consult: Entities may want to seek legal advice, particularly regarding whether the criteria for Reporting Company applies to the specific entity, as well as regarding other requirements for reporting.
-File a Report if Required: Companies should not wait until December to file – it is easy to forget the deadline, and questions can arise that can delay the filing process.
Please contact us if you have any questions. Also, please contact us as soon as possible if you would like our assistance with this, as we must prepare for this work.