The Corporate Transparency Act (“CTA”) was enacted January 1, 2021, as part of the National Defense Authorization Act, representing the most significant reformation of the Bank Secrecy Act and related anti–money laundering rules since the U.S. Patriot Act. The CTA is intended to address and guard against money laundering, terrorism financing, and other forms of illegal financing by mandating certain entities (primarily small and medium size businesses) to report “beneficial owner” information to the Financial Crimes Enforcement Network (“FinCEN”).
The CTA filing deadline is December 31, 2024. Penalties for willfully violating the CTA’s filing requirements include (1) civil penalties of up to $591 per day, (2) a criminal fine of up to $10,000, and/or (3) imprisonment of up to two years.
Entities required to file under the CTA will also have ongoing filing requirements when there is a change in owner information including address change (the detail of the ongoing CTA filing requirements are not part of this correspondence).
What entities are subject to the new CTA reporting requirements?
Entities required to comply with the CTA (“Reporting Companies”) include corporations, limited liability companies (LLCs), limited liability partnerships (LLPs) and other types of companies that are created by a filing with a Secretary of State (“SOS”) or equivalent official. The CTA also applies to non-U.S. companies that register to do business in the U.S. through a filing with a SOS or equivalent official. There are a number of exceptions to who is required to file under the CTA. Many of the exceptions are entities already regulated by federal or state governments and as such already disclose their beneficial ownership information to governmental authorities.
Another notable exception is for “large operating companies” defined as companies that meet all of the following requirements:
· Employ at least 20 full-time employees in the U.S.; and
· U.S. Gross revenue (or sales) over $5 million on the prior year’s tax return; and
· An operating presence at a physical office in the U.S.
Who is considered a “beneficial owner” of a Reporting Company?
A beneficial owner is any individual who, directly or indirectly, exercises “substantial control” or owns or controls at least 25% of the company’s ownership interests.
An individual exercises “substantial control” if the individual (i) serves as a senior officer of the company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board; or (iii) directs, determines, or has substantial influence over important decisions made by the Reporting Company. Thus, senior officers and other individuals with control over the company are beneficial owners under the CTA, even if they have no equity interest in the company.
In addition, individuals may exercise control directly or indirectly, through board representation, ownership, rights associated with financing arrangements, or control over intermediary entities that separately or collectively exercise substantial control.
Information needed for a CTA filing
The following information is required for a CTA filing:
For each beneficial owner:
· Full legal name;
· Residential address;
· Date of birth; and
· Copy of front and back of current valid driver’s license.
Take immediate action now!
You can make filings with FinCEN at no cost using FinCEN’s website, which is located at https://www.fincen.gov/boi. You do not need the assistance of counsel to make such filings.
In the event that you would like our assistance with respect to CTA compliance, please send an email requesting such assistance to ctarequests@mackenziehughes.com or to any of our attorneys who have represented you with respect to other matters. We request that you make any such request for assistance by October 22, 2024. Upon our receipt of any such request for assistance from you, one of our attorneys will contact you to discuss your request and the terms of a potential engagement with respect to CTA compliance. Please be advised that requesting our assistance with respect to CTA compliance does not itself establish an attorney-client relationship between us and you. We will provide you with assistance with respect to CTA compliance only upon your and our mutual agreement of the terms of an engagement and (unless an appropriate engagement letter is already on file with us) the execution of an engagement letter by both us and you.