Corporate Transparency Act
Hi, my name is Steve Bennett, and I am a partner at Evans Fox. We are reaching out to you today to inform you of an important change in federal law. If you own a business, are looking to start a business or hold an important position within a business, then this video is for you.
The new law is called the Corporate Transparency Act, which went into effect at the beginning of this year. This law requires corporations, LLCs, and any other entity formed at the state level to disclose its beneficial ownership to the federal government. New York has enacted a similar law that will require LLCs formed in or authorized to do business in NY to disclose its beneficial ownership beginning in December, 2024. But for purposes of today, I am only going to focus on the new federal law.
Who is required to file? (just about everyone)
There are some exceptions to this new requirement including banks and financial institutions that are already regulated by the federal government. The most common exception that clients will fall under is the “large operating company” exception. To qualify for the exception, the entity must have:
- More than 20 full-time employees;
- More than $5,000,000 in domestic gross receipts or sales as reported on their prior tax return; and
- An operating presence at a physical office within the U.S.
The Financial Crimes Enforcement Network, also known as FinCen, has created a compliance guide available on its website that includes a questionnaire and flow chart to determine whether your business is required to file.
Here is a link to the compliance guide:
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
What is required to be filed?
You must disclose information about the entity itself, called the reporting company, the identity and information related to each of its beneficial owners, and for entities formed in 2024 and after, the identity and information related to the reporting company’s “applicant”. Generally speaking, the applicant is the person who filed the document necessary to form the reporting company or who directed or controlled the filing.
For the reporting company, you must disclose its:
- Full Legal Name and any trade name or DBA;
- Complete US address;
- Jurisdiction of formation; and
- EIN.
For each beneficial owner, you must disclose each beneficial owner’s:
- Full legal name and date of birth;
- Current residential or business address; and
- Unique identifying number from a non-expired passport, personal identification card, or driver’s license issued by a State.
Who is a beneficial owner?
The law and regulations broadly define beneficial owners as:
- A person that owns 25% or more of the equity interests of the entity;
- A person that receives substantial economic benefits from the assets of the entity ( this condition is included in the regulations but not in the guidelines); or
- Natural person who exercises substantial control over the entity.
The following are not considered beneficial owners:
- Minors;
- Person acting as nominee, intermediary, custodian, or agent;
- Employee of an entity and whose control over or economic benefits from such entity are derived solely from the employment status of the person, provided such person is not a senior officer as defined in the regulations;
- A person whose only interest in the entity is through a future interest through right of inheritance; and
- Creditor.
For purposes of this law, equity interests include more than ownership of common stock in a corporation or a membership interest in an LLC. It includes a variety of other equity-like structures too numerous to individually list here. The statute and regulations, at this time, do not give us much information on what constitutes receiving substantial economic benefits from the assets of the entity. We do have guidance on what is considered exercising substantial control over an entity. This includes:
- A senior officer of the entity;
- Anyone who has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body);
- Anyone who directs, determines, or has substantial influence over important decisions made by the reporting company (the regulations go on to provide several examples); and/or
- Any other form of substantial control over the entity.
When is the filing due?
A reporting company’s initial filing is due:
- If formed prior to 2024, by 1/1/2025
- If formed during 2024, within 90 days of formation
- If formed 1/1/2025 or after, within 30 days of formation
A reporting company is required to file additional reports:
- Within 30 days of any change in beneficial ownership (for a change based upon death, 30 days runs from when the Estate is settled)
Where do I file?
Congress has tasked the US Treasury Department through FinCen to collect this data via an online filing at www.fincen.gov/boi.
What happens if I don’t file?
The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two (2) years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
What is Evans Fox doing to help?
FinCen has designed the filing system to be completed by the reporting companies and its beneficial owners. We are advising our clients to visit the FinCen website to file these reports on their own in order to save on legal fees. However, Evans Fox will file these reports on behalf of our clients, if so desired. While our clients are legally required to determine when they need to file and ensure they provide all the information required well in advance of any deadline, we stand ready to help if needed.