Earlier this year, we alerted our clients that new beneficial ownership reporting requirements under the Corporate Transparency Act ("CTA") had taken effect, beginning January 1, 2024. As we enter the fourth quarter, we urge our clients to take the necessary steps to ensure they are in compliance. All subject businesses ("Reporting Companies") must file a Beneficial Ownership Information Report ("BOIR") by the end of the year. If you have questions or would like our assistance with the filing of your report, please contact a member of your MSF team.
Critical Dates
Reporting Companies formed before the year 2024 must file their initial BOIR by January 1, 2025.
The CTA took effect on January 1, 2024. Reporting Companies formed in the year 2024 must file an initial BOIR within 90 days of formation. If you formed an entity this year and have not filed an initial report, we recommend filing as soon as possible, notwithstanding that such report may be late.
Beginning in 2025, newly formed business entities which are Reporting Companies must file an initial BOIR within 30 days of formation.
Once a Reporting Company has filed its initial BOIR, it must file an updated BOIR in the event that any of the reported information changes, within 30 days of the occurrence of such a change
How to File a Report
Reporting Companies can submit their BOIR electronically by filing a form online using the Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN") website. We provide a link to the website below. A Reporting Company can prepare and submit the form itself, or enlist the help of an attorney or other professional. We are happy to assist our clients in filing their report.
Information Required by the Report
The CTA requires a reporting company to report basic, identifying information about its Beneficial Owners, such as their names and addresses. Beneficial Owners are also required to submit copies identifying documentation, such as a driver's license or passport.
A "Beneficial Owner" means the direct or indirect owner of a 25% or greater equity interest in the entity, or an individual who directly or indirectly exercises "substantial control" over the entity.
The definition of "substantial control" under the CTA is broad, and will require a facts-based analysis performed on a case-by-case basis.
It is important to note that the information reported under the CTA is not publicly available, and is maintained by FinCEN in a secure, non-public database.
Determining Whether You are a Reporting Company
The coverage of the CTA is expansive. All business entities organized or registered in the U.S. are subject to the CTA, unless a specific exemption applies. This includes corporations, limited liability companies and limited partnerships.
There are numerous exemptions available, but they are narrowly tailored, and businesses must take care in evaluating whether an exemption may apply to them.
Exempt businesses include large operating companies, public companies, nonprofits, inactive entities and businesses in certain highly regulated industries (for example, banks, insurance companies, broker-dealers and investment advisers).
Penalties for Failure to Comply
The consequences of failing to timely file your BOIR may be severe. A person who willfully violates the CTA may be subject to civil penalties of up to $500 for each day that the violation continues, as well as criminal penalties of up to two years imprisonment and fines of up to $10,000. Both a Reporting Company and a Beneficial Owner may be held liable for such a violation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
