By Chadd Colin, Esq.
On January 1, 2024, the federal Corporate Transparency Act (“CTA”) went into effect. Among other things, the CTA requires that certain businesses in existence prior to January 1, 2024, and certain businesses formed after January 1, 2024, register their beneficial owner information with the Financial Crimes Enforcement Network (“FinCen”), a division of the U.S. Treasury Department.
According to Wolters Kluwer, it is estimated that 32 million U.S. businesses are now subject to CTA compliance standards.
The CTA was enacted by Congress in 2021 (overriding presidential veto) for the stated purpose of combating money laundering, fraud, trafficking, and corruption through the use of the relative anonymity offered by the veil of state corporate laws. The rationale is that U.S. national security and fiscal accountability will be boosted by the creation of a database—the BOSS (Beneficial Owner Secure System)—that connects American businesses to the individual people that own and/or control them.
Initially, most corporate entities and forms, including corporations (Inc.’s; Co.’s), limited liability companies (LLC’s), and limited partnerships (LP’s) will be within the scope of entities covered by the CTA who must file and keep current a beneficial owner information report.
Fortunately, though, there are at least 23 different exemptions which allow businesses to avoid the filing requirement. Most exemptions are for entities that provide beneficial owner information through other means of regulatory compliance (for example, banks, which are regulated by the Office of the Comptroller of the Currency; and securities broker/dealers, which are regulated by FINRA). Then, there is also an exemption for a “large operating company,” which is any entity that employs 20 or more full-time employees, reported over $5 million in gross receipts in the previous tax year, and has an operating presence at a physical address in the U.S.
It is expected that this “large operating company” exemption will provide relief for many medium-sized, regional businesses. However, many small and local businesses will likely not qualify for any type of exemption.
Compliance with the CTA is relatively simple and straightforward. A covered entity must file a beneficial owner information report online with FinCen (https://boiefiling.fincen.gov/). The report will include the name and contact information for any person who owns 25% or more of the business, as well as any person who exercises “substantial control” over the business. All people who meet the criteria of being a “beneficial owner” must be listed on the report—there is no limit on the number of beneficial owners that must be disclosed for a given business. Interestingly, all beneficial owners must also submit a copy of a government-issued identification card (driver’s license, passport, etc.).
The Treasury Department promises that the BOSS system is and will be a secure database. Only certain governmental actors will have access to the system, and even then, many of those will require court approval prior to accessing the information stored therein.
The deadlines for compliance are as follows:
Businesses in existence prior to January 1, 2024 must file a beneficial owner information report on or before December 31, 2024. The report must be kept current at all times—any changes to the information on the beneficial owner information report must be made within 30 days after the change is known (for example, turnover in the CEO position of a covered entity). For businesses formed after January 1, 2024, they must file their initial beneficial owner information report within 90 days of entity creation.
Businesses should consult with competent legal counsel to determine whether they are covered by the CTA or exempt from filing a beneficial owner information report. Contact YMFZ today for a compliance evaluation.
YMFZ is an efficient, skilled, closely-held Pittsburgh law firm which for more than 30 years has been offering good counsel, personal attention, and cost-effective representation to its clients for all manner of business legal needs, including commercial litigation, business set-up and finance, commercial and technology contracting (including bank representation), employment law, real estate (including oil and gas), and intellectual property. YMFZ clients include both large national and multi-national corporations and regional and local businesses. For more information on our firm, please visit www.ymfzlaw.com.
References: Odom, Beverly G. and John, Anirudh. The Corporate Transparency Act is in effect. Are you ready? January 23, 2024. CT Corporation/Walters Kluwer.
William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub.L. No. 116-283 (H.R. 6395), 134 Stat. 338, 116th Cong. 2d Sess.; §§ 6401-6403