New Federal Law: Beneficial Ownership Reporting

Starting January 1, 2024, a new federal law known as the “Corporate Transparency Act,” (the “CTA”) will impose new reporting obligations that may impact your organization. The attorneys at Hackstaff, Snow, Atkinson & Griess LLC are here to help you learn about the new law and how your organization can comply with the CTA going forward.

What is the CTA?

Congress passed the CTA to combat, prevent and punish illegal activities carried out through anonymous shell companies, such as terrorism and money laundering.

The CTA creates brand new obligations for almost all companies operating in the U.S. The CTA requires an organization to identify personal information regarding its beneficial owners and applicants in reports filed online with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury. The CTA exempts certain regulated entities and “large operating” companies from its reporting obligations.

Does my organization have to file a report? Most Likely: Yes!

Reporting Companies: These new requirements apply to all “reporting companies,” which includes any LLC, corporation, or any other entity, such as partnerships, non-profits, & certain trusts that are formed by making a filing with the state (or tribal jurisdiction) or is a foreign entity but is registered to do business in a state or tribal jurisdiction.

Exempted Companies: The CTA exempts some companies from having to comply with its reporting obligations. These exemptions include:

• Companies that already have an obligation to report similar information to the federal government (e.g., financial institutions, insurance companies, credit unions, tax-exempt companies registered with the IRS, dealers in securities, public utilities, as well as others).
• Certain inactive entities.
• “Large operating” companies that have each of the following:

1. A physical street address in the U.S.;
2. 21 or more full-time employees; and
3. More than $5 million in annual gross receipts/sales reported on its federal tax return.

Whose information must be reported?

Beneficial Owners: The CTA requires companies to file reports on its “beneficial owners” who are:

• Individuals who own or control 25% or more of the “ownership interests” of the organization. An organization may have multiple types of “ownership interests” that will need to be considered (including equity, stock, or voting rights; capital or profit interests; convertible instruments; etc.).
• Individuals who exercise “substantial control” over the organization. Individuals with substantial control include: (a) senior officers; (b) any person with substantial control over the decision making of the organization; (c) any person who has authority over the appointment or removal of senior officers or a majority of the board of directors (or similar body); or (d) any person that otherwise has substantial control over the organization.
• Company Applicants: For all new companies formed after January 1, 2024, reports will need to additionally list personal information regarding any individual who directly files the document that creates the organization and any individual who is responsible for directing or controlling the filing by another.

When are the reporting deadlines?

The CTA deadlines apply in two parts:

New Companies: New companies formed on and after January 1^st, 2024, will be required to file the beneficial ownership reports with FinCEN within 90 days of forming the organization.

Existing Companies: Companies created or registered to do business before January 1^st, 2024, will have to file the beneficial ownership reports with FinCEN before January 1, 2025.

Updates To Reports: After the initial report is filed, companies must file updated reports whenever there is a change to any information of the reporting organization itself or its beneficial owners. This creates an ongoing compliance obligation that will require companies to develop systems for collecting information and ensuring that beneficial ownership information remains accurate.

What beneficial owner information is reported?

Reports contain the following information on each beneficial owner and company applicant, if applicable:

• full legal name;
• date of birth;
• current address;
• unique identifying number from an acceptable identification document (such as a U.S passport, state driver’s license, or other identification document issued by a State)

OR a FinCEN identifier number; and

• an image of (a) U.S. passport; (b) state driver’s license; (c) identification document issued by the state; or (d) if an individual does not have any of the previous documents, a foreign passport.

FinCEN will develop a system for issuing “FinCEN identifier” numbers to individuals. Individuals and legal entities that receive a FinCEN identifier are able to use it in future beneficial ownership reports, in lieu of providing their identifying information again.

Where will beneficial ownership information be stored?

FinCEN is creating a database to assist in the collection of beneficial ownership information. The database will not be accessible by the public but may be accessed by certain government agencies under specified situations related to national security, intelligence, and law enforcement and financial institutions under certain circumstances, with the consent of the organization.

What are the penalties for failing to report?

The CTA makes it unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, or willfully fail to report complete or updated beneficial ownership information to FinCEN. Violating the CTA may result in: (a) civil penalties of up to $500/day that the violation continues and (b) criminal penalties of imprisonment of up to two years and fines up to $10,000.

What can companies do now?

It’s not too early for companies to start thinking about their CTA compliance plans. Here are some examples of what your organization can do now:

Become educated: Check to see if your are exempt from the CTA and if not, you need to identify your organization’s beneficial owners. See the resources below for more detailed information.

Develop a compliance plan: Because your organization must report any change in beneficial ownership, you should develop a plan for collecting AND updating the required information. We recommend you update your organization’s governing documents to address the collection of accurate information and updating such information from beneficial owners on an ongoing basis.

Please contact the attorneys at Hackstaff, Snow, Atkinson, & Griess if you need assistance determining how and if the CTA applies to your organization or in making any necessary changes to your governing documents.

Additional Resources:

• Small Entity Compliance Guide.  https://www.fincen.gov/boi/small-entity-compliance-guide
• Frequently Asked Questions.  https://www.fincen.gov/boi-faqs
• Quick Reference Guides for Filing Dates and BOI Reporting Key Questions.  https://www.fincen.gov/boi/quick-reference

These materials are provided for informational purposes only. They do not constitute legal advice nor do they necessarily reflect the opinions of Hackstaff Snow Atkinson & Griess LLC (HSAG) or any of its attorneys or clients. There is no implicit guarantee that this information is correct, complete, or up to date. These materials are not intended to create an attorney-client relationship between you and HSAG. You should not act or rely on any information in this notice without seeking the advice of an attorney.