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Corporate Transparency Act – Reporting Procedure

The Corporate Transparency Act (“CTA“) went into effect on January 1, 2024 (the “Effective Date“). The purpose of the CTA is to assist law enforcement in combatting money laundering, fraud, and other illicit activity.

The CTA requires most entities to report information about the entity and its beneficial owners to the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN“). Entities that were formed prior to the Effective Date have until January 1, 2025 to make their initial filing. Entities that are formed after the Effective Date must make their initial filing within 90 days (for entities formed in 2024) or 30 days (for entities formed on or after January 1, 2025) after their formation.

The CTA affects most of our entity clients. This article provides guidance on how you can make your initial filing and comply with the CTA. If you have questions or would like assistance with the filing, please reach out to your attorney at Reicker Pfau.

Again, entities subject to the CTA that were formed prior to January 1, 2024 need to make their initial filing no later than January 1, 2025.      

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Step 1: Determine whether the CTA applies to your entity

Most domestic entities are subject to the CTA, including corporations, LLCs, LPs, and any other entity created by filing a document with a secretary of state or similar office. The CTA also applies to foreign entities that are registered to do business in the US.

However, the CTA provides exemptions for certain types of entities. Exempt entities generally include:

  • large operating companies with more than 20 full-time employees in the US that reported more than $5 million in gross receipts or sales on their filed prior year US federal income tax return (net of returns and allowances, excluding gross receipts or sales from sources outside the US, but including the receipts or sales of other entities owned by the entity and through which the entity operates), and that have an operating presence at a physical office in the US;
  • public companies;
  • certain inactive entities that existed on or before January 1, 2020;
  • SEC-registered investment companies or advisers;
  • venture capital fund advisers;
  • certain pooled investment vehicles;
  • insurance companies and insurance producers;
  • certain other highly regulated financial services companies, like banks, credit unions, and registered securities brokers or dealers;
  • public accounting firms;
  • tax-exempt entities, like 501(c)(3) nonprofit organizations, political organizations, and certain trusts;
  • entities assisting tax-exempt entities;
  • governmental authorities; and
  • subsidiaries that are wholly owned or controlled, directly or indirectly, by certain exempt entities.

If you think that you may qualify for an exemption, we encourage you to review the underlying regulations, which include specific criteria for the exemptions. They are in 31 CFR 1010.380(c)(2), available here: https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1010/subpart-C/section-1010.380 The criteria can be complex, so please contact your attorney if you would like assistance in evaluating whether you are exempt.

Step 2: Determine what information you need to report

The CTA generally requires entities to report:

  • Information about the entity, including legal name, trade names, address, state of formation, and EIN.
  • Information about “beneficial owners“, which includes any individual who, directly or indirectly, (a) exercises “substantial control” over the entity, or (b) owns or controls 25% or more of the entity’s ownership interests.
    • Substantial control, as defined in the CTA, generally includes (i) senior officers (e.g., CEO, CFO, GC, COO, etc.), (ii) any person with authority to appoint or remove officers or a majority of the directors, (iii) any person who has substantial influence over important decisions, and (iv) any person who otherwise has any type of substantial control over the entity.  A common question is whether directors need to be reported. There is no official guidance on that topic as of today, so it needs to be evaluated on a case by case basis. Generally, our view is that companies with smaller boards are more likely to be required to report directors (because each director exerts relatively more influence) and companies with larger boards may not be required to report directors, unless any of them has outsized or special powers.
    • For purposes of the 25% test, ownership is broadly defined to include stock, convertibles, profits interest, and any other ownership rights or arrangements.

Step 3: Identify company applicants

The CTA requires entities formed after the Effective Date to identify up to two individuals who filed or were responsible for directing or controlling the filing of the charter forming the entity. This requirement does not apply to entities formed prior to January 1, 2024, so entities formed prior to that date can skip this step.

Step 4: Complete the CTA filing

The CTA filing can be done online here (select “File BOIR”): https://boiefiling.fincen.gov/  It is a quick and simple process.

You will need to report specific information regarding the company, including legal name, trade names, address, state of formation, and EIN.

You will also need to report specific information regarding beneficial owners, including legal name, date of birth, residential address, and a unique ID number from a passport or drivers license. You will need to upload a copy of the identification document.

To make the process easier, beneficial owners can get their own FinCEN ID numbers, in which case they will provide that information to FinCEN, and you will only need to input their FinCEN ID number. That is a simpler process for entities and avoids holding personal information, so we recommend that entities request that their beneficial owners obtain FinCEN IDs and use those to report. Using a FinCEN ID also puts the responsibility for updating the beneficial owner’s information, such as address, on the individual and not the reporting entity. Individuals can obtain a FinCEN ID here: https://fincenid.fincen.gov/landing

Step 5: Update and correct reports

If any information in a report changes or needs to be corrected, the reporting entity must file an updated report within 30 days. Entities should be mindful of this going forward to ensure that all information regarding the company and its beneficial owners stays current.

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While the CTA has some complexity, for many companies the process will be straightforward. If you have any questions or would like assistance, please feel free to reach out to your attorney at Reicker Pfau.

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