In an effort to bolster transparency and combat financial crimes such as money laundering and tax fraud, the Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”).
This legislation, which came into effect on January 1, 2024,introduces significant reporting requirements for Family Partnerships, Limited Liability Companies (LLCs) and corporations. The CTA mandates the disclosure of ownership and management details, targeting entities operating within or accessing the U.S. market.
Key Terms to Understanding the New Requirements
Reporting Company: This term encompasses any domestic entity formed or any foreign entity registered to do business in any state within the United States – subject to 23 enumerated exemptions, including:
- Governmental authorities, banks, and credit unions.
- Investment companies, investment advisers, and venture capital fund advisers registered with the Securities and Exchange Commission (SEC)
- Large operating companies that employ more than 20 full-time employees in the US, have an operating presence at a physical office within the US, and filed a
federal income tax or information return in the US for the previous year demonstrating more than $5 million in gross receipts or sales.
Beneficial Owner: Beneficial owners are any individuals who directly or indirectly (a) exercise substantial control of a reporting company or (b) own or control at least 25 percent of the ownership interest in a Reporting Company.
Substantial Control: A person exercising substantial control is someone in the company who is an “important decisionmaker” and has influence over crucial decisions regarding the business. An Important Decision Maker is an individual who directs, determines, or has substantial influence over decisions involving the company’s business, finances, or structure. These are often the senior officers of the company.
What are the new reporting requirements?
For Reporting Companies established or registered on or after January 1, 2024, reports must be filed within 30 calendar days of either the entity's effective registration or the Secretary of State's public notice. Those created before this date must file reports by January 1, 2025. The required information includes the entity's full legal name, trade name, current address, jurisdiction, and IRS taxpayer identification number.
Beneficial Owners and Company Applicants must provide comprehensive details such as their full legal name, date of birth, residential address, a non-expired U.S. identification document, or a foreign passport.
Consequences of Non-Compliance
The penalties for failing to comply with the CTA are severe. Non-compliance can lead to steep financial penalties, fines, and even imprisonment. Civil penalties of up to $500 per day may be imposed until the violation is rectified, with criminal fines reaching $10,000 and a maximum imprisonment term of two years.
How do you file your report?
Entities required to report their beneficial ownership information will do so electronically through FinCEN's BOI E-Filing website(https://boiefiling.fincen.gov). Authorized individuals, including employees, owners, or third-party service providers, may file on behalf of Reporting Companies. Filers need to provide basic contact information, such as name and email address or phone number, during the submission process.
If you need help with filing your report, the Planning and Transactions team at Dillman & Owen Estate & Elder Law can help. Contact us online or call us at (317) 492-9569 to speak with a member of the team!
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