CLIENT ALERT: CORPORATE TRANSPARENCY ACT
This message is to notify you of some important regulatory changes that will impact many business entities and may require your attention. The Corporate Transparency Act (CTA), enacted by Congress in 2021, imposes new reporting requirements on many corporations, limited liability companies, limited partnerships and other business entities. Effective January 1, 2024, CTA requires “reporting companies” to report certain beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCen) of the U.S. Department of the Treasury. There are a number of exemptions, but it is our view that few of our business clients will qualify for an exemption. The Treasury Department is requiring the reporting of this information in order to increase ownership transparency, to combat fraud, money laundering and other illegal activities, and to enhance the Treasury Departments efforts to protect the U.S. financial system from bad actors. Failure to comply with CTA’s beneficial ownership reporting requirements could expose you to both civil and criminal penalties so we urge you to begin the necessary compliance activities as soon as possible.
We anticipate that you may have questions regarding your new reporting obligations. Following is a link to FinCen’s dedicated CTA site where you will find additional Q&As, a compliance guide, a work sheet to determine if you qualify for an exemption, and other resources: https://www.fincen.gov/boi/small-entity-compliance-guide
Of course, we would be happy to assist you with any questions you may have about CTA and its reporting requirements. Below are some FAQs which may be helpful for you to get started.
WHO MUST REPORT BENEFICIAL OWNERSHIP INFORMATION:
Subject to certain exemptions, reporting companies are business entities, such as corporations, limited liability companies, limited partnerships and other business entities, that were created by filing a document with the office of the secretary of state or similar office under the law of any state. Information must be reported for both beneficial owners and applicants.
WHEN DO I NEED TO BEGIN REPORTING BOI:
Companies that were created prior to January 1, 2024 will have until January 1, 2025 to report BOI. Companies created or registered on or after January 1, 2024, and before January 1, 2025, must report BOI within 90 calendar days after receiving actual or public notice of creation or registration. Companies created or registered on or after January 1, 2025, will have 30 days after receiving actual or public notice of creation or registration to report BOI. BOI previously filed with FinCen must be updated within 30 days after the occurrence of the event giving rise to the update. All CTA reporting must be conducted through FinCen’s secure reporting portal, which is expected to be available on January 1, 2024. FinCen will not accept any reporting prior to January 1, 2024.
WHAT IS A BENEFICIAL OWNER:
For purposes of CTA, a beneficial owner is an individual who owns at least 25 percent of a company or has substantial control over the company. Identifying 25% owners is straightforward, but how do you determine substantial control? An individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company. The first step with CTA compliance is to identify all beneficial owners.
WHAT IS AN APPLICANT:
An applicant is the individual who directly filed the creation or first registration document for the reporting company with the secretary of state or similar office.
WHAT INFORMATION DO I NEED TO COLLECT AND REPORT
For the reporting company itself, you must report:
(i) Full legal name and any trade name or “doing business as” (including all DBAs).
(ii) Complete current U.S. address, meaning the address of the principal place of business in the United States, or, if the reporting company’s principal place of business is not in the United States, the primary location in the United States where the company conducts business.
(iii) State or foreign jurisdiction of formation.
(iv) Internal Revenue Service (IRS) Taxpayer Identification Number (TIN (including an Employer Identification Number (EIN).
For each beneficial owner and company applicant, you must report:
(i) Full legal name.
(ii) Current residential address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address.
(iii) Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents: U.S. passport, state driver’s license, or other identification document issued by a state, local government.
You are required to keep and maintain records for five years after a beneficial owner’s departure.
This client alert is intended to inform you of legal developments which may affect you or your business. It is not intended to constitute legal advice with respect to any specific legal issue or question. This client alert may constitute advertising under the rules of the Massachusetts Supreme Judicial Court.