The Corporate Transparency Act
Beginning January 1, 2024, the Corporate Transparency Act (“CTA”) requires most privately held small businesses to report information (a “FinCEN report”) about the business and beneficial business owners (“Beneficial Owners”) to the Financial Crimes Enforcement Network (“FinCEN”). FinCEN is tasked to use this reported information to create and maintain a confidential and secure national database for national security and law enforcement agencies to identify shell companies used for criminal activity. Notwithstanding legal and legislative efforts challenging the CTA, it remains in force and requires timely compliance. The willful failure to do so may result in significant civil and criminal penalties.
The following information is meant only as a general summary of the CTA and should not be relied on to apply to your specific facts and circumstances unless you first consult with legal counsel. Jennings Haug Keleher McLeod Waterfall LLP (“JKW”) is sending this information to encourage your study of and compliance with the CTA. Providing this general information does not create an engagement with JKW, or obligate JKW to provide legal services related to compliance with the CTA.
Important Deadlines. The CTA deadlines for Reporting Companies (as defined herein) to file FinCEN reports are as follows:
- For Reporting Companies formed or registered before January 1, 2024, the initial FinCEN report is due by January 1, 2025.
- For Reporting Companies formed or registered on or after January 1, 2024, and on or before December 31, 2024, the initial FinCEN report is due within 90 days after formation or registration.
- For Reporting Companies formed or registered on or after January 1, 2025, the initial FinCEN report is due within 30 days after formation or registration.
- Any change of information for Reporting Companies or Beneficial Owners must be updated by a new FinCEN report filed within 30 days after the change.
Who Must File. Unless specifically exempted by the CTA, Reporting Companies must file FinCEN reports to provide information about (i) the Reporting Companies’ applicants (“Company Applicants”) if the Reporting Companies were formed or registered on or after January 1, 2024, and (ii) the Reporting Companies’ beneficial owners (“Beneficial Owners”). The FinCEN report advising about Beneficial Owners is called a Beneficial Ownership Information Report (“BOIR”). Exemptions to the CTA may apply to Reporting Companies that are already subject to governmental reporting requirements (including banks, credit union, insurance companies, and public utilities) and certain large operating companies, which includes any company with (i) more than 20 full-time U.S. employees, (ii) and operating presence at a physical office within the U.S., and (iii) more than $5,000,000.00 of U.S. sourced gross receipts reported on the company’s prior year federal income tax return.
Reporting Companies. Generally, domestic and foreign corporations, limited liability companies and similar entities are considered reporting companies if a document was filed with a secretary of state or similar office to form or register the company such as the Arizona Corporation Commission, the Arizona Secretary of State or the New Mexico Secretary of State (“Reporting Companies”).
Beneficial Owners. Two groups of individuals are alternatively considered Beneficial Owners of Reporting Companies: (i) individuals that directly or indirectly own or control at least 25% of the ownership interests, or (ii) individuals who exercise substantial control over Reporting Companies. Briefly, individuals have “substantial control” over a Reporting Companies if the directs, determine, or have substantial influence over important decisions about the business, operations, finances and structure of the Reporting Companies. Senior officers (president, manager, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers or board members. Beneficial Owners need not have actual ownership in or a formal position with Reporting Companies to be considered Beneficial Owners under the CTA.
Company Applicants. Company Applicants for Reporting Companies are (i) the persons who actually file the document that forms or registers the Reporting Companies (including a lawyer, paralegal, “organizer” or accountant), and (ii) the persons primarily responsible for directing or controlling such formation or registration (including owner, president, manager and CFO). Company Applicants must provide the same information that is required of Beneficial Owners, but only for Reporting Companies formed or registered after January 1, 2024.
What Information Needs to be Provided.
- Reporting Companies. The FinCEN report will require: 1. Full legal company name, including DBA’s 2. Street address of principal place of business 3. State, tribal or foreign jurisdiction of formation or registration 4. TIN (including EIN), or, if TIN has not yet been issued, DUNS number of LEI, in Arizona and foreign jurisdiction. Foreign companies with a TIN must provide a foreign tax identification number.
- Company Applicants. For Reporting Companies formed after January 1, 2024, the FinCEN report for Company Applicants will require: 5. Full name 6. Date of birth 7. Residential street address (if also Beneficial Owners) or business address (if only Company Applicants) 8. Unique identifying number from a non-expired identification document, including an image of the identification document (driver’s license, passport, state ID)
- Beneficial Owners. For Beneficial Owners, the BOIR will require: 9. Full name 10. Date of birth 11. Residential street address (for a Beneficial Owners) or business address (if only Company Applicants) 12. Unique identifying number from a non-expired identification document, including an image of the identification document (driver’s license, passport, state ID)
FinCEN Identifiers. Company Applicants and Beneficial Owners can and should request a FinCEN Identifier (“FinCEN ID”) to be used in place of supplying detailed information on the BOIR or other applicable FinCEN report. To obtain a FinCEN ID, you can register at www.login.gov. This approach allows detailed personal information to only be provided one time to secure a FinCEN ID and, thereafter, only the FinCEN ID need be used on a future FinCEN report and BOIR. A FinCEN ID is a unique number assigned by FinCEN that is obtained by submitting the same information required of Beneficial Owners, Reporting Companies or Company Applicants. A FinCEN ID will be useful to individuals who prefer to send their personal information directly to FinCEN rather than through a Reporting Company, or to individuals who may be required to supply information as Beneficial Owners of or Company Applicants for several Reporting Companies.
Penalties. The penalties for willfully failing to file both initial and updated reports are $591 per day (adjusted periodically) under the CTA (up to $10,000.00), imprisonment for up to two years, or both.
How to File. FinCEN reports must be filed through FinCEN’s e-filing portal, available at www.boiefiling.fincen.gov, that provides two methods to submit a FinCEN report: (i) by filling out a web-based version of the form and submitting it online, or (ii) by uploading a completed PDF version. The person who submits the FinCEN report will need to provide their name and email address to FinCEN. There is no filing fee.
FinCEN has a Small Entity Compliance Guide and frequently asked questions section, available at www.fincen.gov/boi/small-business-resources, to help guide small businesses through the reporting requirements. Other references include www.fincen.gov/boi-faqs.
Beware of scams. Please beware of scams. You likely have and will continue to receive many solicitations relating to CTA related services. If you engage anyone to provide those services, make sure the services are being provided by a verifiable and reputable company or individual. The information that is reported on a FinCEN report can be used to steal your identity if in the wrong hands
Legal Disclaimer: This notice and materials are meant as a general and summary introduction to the topics included and are not meant as an exhaustive representation of each topic or all issues related to each topic. Each person in possession of these materials should conduct independent research of each topic covered in the materials or should seek legal counsel and should not rely on these materials independently. Possession of these materials does not constitute an engagement for legal services with JKW related to the topics discuss herein and does not make JKW responsible for advising you regarding, or ensuring your compliance with the CTA.
