The Corporate Transparency Act (CTA) is a significant piece of U.S. legislation aimed at increasing transparency in corporate ownership to combat illegal activities like money laundering, terrorism financing, and tax evasion. Here's a more detailed look at the key aspects:

1. Beneficial Ownership Information (BOI) Requirements:

• Existing companies: Reporting companies created or registered to do business in the United States before January 1, 2024, must file by January 1, 2025.
• Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company's creation or registration is effective.

• Who Must File:
  • The CTA applies to a broad range of entities, including corporations, limited liability companies (LLCs), and similar entities formed under the laws of a U.S. state or registered to do business in the U.S.
  • Exemptions include large operating companies (with more than 20 full-time employees, more than $5 million in revenue, and a physical office in the U.S.), certain regulated entities (like banks, credit unions, and insurance companies), and inactive entities. Reporting Companies
  • The rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Under the rule, and in keeping with the CTA, twenty-three types of entities are exempt from the definition of “reporting company.”
  • FinCEN expects that these definitions mean that reporting companies will include (subject to the applicability of specific exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office.
    Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that in many states the creation of most trusts typically does not involve the filing of such a formation document.
• Beneficial Owners:
  • A beneficial owner is defined as any individual who meets one of the following criteria:
    1. Ownership: Directly or indirectly owns or controls 25% or more of the ownership interests of the entity.
    2. Control: Exercises substantial control over the entity, such as making significant decisions or holding key positions (e.g., CEO or president)..

2. Exemptions:

• Certain entities are exempt from the BOI filing requirements. These typically include:
  • Large Operating Companies: Companies with more than 20 full-time employees, more than $5 million in gross receipts or sales, and a physical presence in the U.S.
  • Regulated Entities: Entities already subject to extensive federal or state regulation, like banks, insurance companies, and public utilities.
  • Inactive Entities: Companies that were in existence before January 1, 2020, are not engaged in active business, have no assets, and are not owned by a foreign person.

3. Deadlines:

• Existing Entities: Entities formed or registered before the effective date of the CTA regulations must file their initial BOI reports within one year of the regulations taking effect.
• New Entities: Entities formed or registered on and after the on or after January 1, 2025, must file their BOI reports within 30 days of formation or registration.

4. Penalties for Non-Compliance:

• Civil Penalties: Fines up to $500 per day for each day the violation continues.
• Criminal Penalties: Willfully providing false or fraudulent information or willfully failing to report can result in fines up to $10,000 and/or imprisonment for up to two years.

5. Privacy Considerations:

• The BOI submitted to FinCEN has not been made public. It is stored in a secure, non-public database.
• Access to this information is limited to authorized government authorities, such as law enforcement agencies and federal regulators, under strict conditions. This is intended to protect privacy while still allowing for effective oversight and enforcement.

6. Impact on Businesses:

• Compliance Burden: Many small and medium-sized businesses, which may not be used to reporting this level of detailed information, need to be particularly mindful of these new requirements.
• Preparation: Businesses should assess their structures to determine if they fall under the CTA's reporting requirements and prepare the necessary information for timely filing.
• Legal and Financial Advice: Companies should consult with legal and financial advisors to ensure full compliance and avoid any potential penalties.

The CTA represents a significant shift in corporate transparency in the U.S., aligning the country with global efforts to combat financial crimes by making it harder to hide illicit activities behind anonymous shell companies.

More information about the BOI Reports and the Corporate Transparency Act. Please contact our main point of contact at our office at 469-777-6161 with any questions. Thank you in advance for your attention to this matter.