Important Compliance Deadlines for Corporate Transparency Act

CLIENT ALERT
Important Reporting Deadlines — Corporate Transparency Act

On January 1, 2024, the federal Corporate Transparency Act (“CTA“), and its associated Beneficial Ownership Information Reporting Rule (the “Reporting Rule“), became effective. The Reporting Rule requires certain entities to begin filing beneficial ownership information reports (“BOIR“) to the Financial Crimes Enforcement Network (“FinCEN“).

A Reporting Company (defined below) must file a BOIR:

• • • within 90 days after its formation if formed in 2024;
    • on or before December 31, 2024, if formed on or before December 31, 2023; or
    • within 30 days after its formation if formed after December 31, 2024.

Penalties for noncompliance (per entity) are hefty: $600 per day, up to $10,000, and up to two years in prison.

Who must file?

Corporations, limited liability companies, or similar entities created by filing with a secretary of state that do not meet an exemption (“Reporting Companies“) are required to report under the CTA. All start-ups are subject to the Reporting Rule unless or until they reach the thresholds required to qualify for the exemption.

There are 23 exemptions under the CTA which focus on entities that are either:

• • • highly regulated by a governmental body (i.e., SEC, CFTC, OCC, FINRA, insurance, utilities);
    • tax-exempt (501(c)(3) and 501(c)(4) entities); or
    • large (i.e., 20 or more employees and $5,000,000 of revenue) or public companies.

What information must be reported and when?

Reporting Companies must report the full legal name, date of birth, address, and the driver’s license or passport number for each Beneficial Owner and Applicant.

FinCEN has published a Small Entity Compliance Guide to “help small entities comply with the requirements of the [Reporting Rule].” It can be found here.

Who is a beneficial owner or applicant?

A “Beneficial Owner” is an individual who either:

• • • directly or indirectly owns more than 25% of the Reporting Company (the “Ownership Test“); or
    • has substantial control over the Reporting Company (the “Control Test“).

Ownership of a Reporting Company goes beyond stock, membership or ownership units, and includes indirect forms of ownership such as convertible notes, puts, calls, and warrants.

Certain senior officers of a Reporting Company, such as CEO, president and general counsel are automatically treated as Beneficial Owners for purposes of the Control Test. Individuals who serve on the Board of Directors or have a similar role in a Reporting Company may also be treated as Beneficial Owners depending on a subjective measure as to the scope of their authority.

An “Applicant” is the individual or individuals who formed the Reporting Company by filing with the applicable secretary of state and, in certain cases, the person who supervised the formation of the Reporting Company.

How to File

Should you wish to file a BOIR yourself, you can find the BOIR here and the instructions for completing the BOIR here. If we formed the Reporting Company for you, you will need to obtain the applicable information for the Applicant from us.

Corporation Service Company (“CSC“) and other third parties provide BOIR filing services. The use of CSC or similar third-party providers of BOIR filing services is likely the most cost-effective and time saving approach for complying with the CTA. Note that CSC has indicated they will not accept orders to file BOIR’s after October 1, 2024, in anticipation of a large influx of filing requests in the fourth quarter.

In the event you prefer Densborn Blachly to assist in the filing of BOIRs on behalf of a Reporting Company, please contact us at your earliest convenience.