News

By Melissa Cassel
Attorney at Law

Your company may be required to file a Beneficial Ownership Report under the Corporate Transparency Act. There are some exemptions. However, smaller businesses, real estate investment companies or companies without a physical presence in the United States, will most likely not qualify for any exemption. The filing period begins on January 1, 2024. Reports are filed online at FinCEN.gov. Additional guidance can be found on the FinCEN.gov website.

What is the Corporate Transparency Act?

Congress enacted new anti-money laundering laws as part of the Anti-Money Laundering Act under the National Defense Authorization Act (NDAA) and tasked the US Treasury Departments Financial Crimes Enforcement Network (“FinCen”) with establishing a private national database of beneficial owners of entities considered as “reporting companies.” The law aims to prevent the flow of illicit money by implementing several new or enhanced safeguards – one of which is via the Corporate Transparency Act (“CTA”).

The thought behind CTA is that bad actors conceal identities and ownership of entities through the use of shell companies to facilitate illicit activities, such as money laundering, human or drug trafficking, fraud and acts of terrorism. The lack of required transparency on ownership and identity has seemingly perpetuated such criminal activities.

Who must report under the Corporate Transparency Act?

All reporting companies – broadly defined as any corporation, limited liability company, or other entity created by filing a document with the secretary ofTribe or similar office in any state or territory or with a federally recognized Indian Tribe, or formed under the laws of a foreign country and registered to do business in the United States; provided however, there are a few exceptions, generally excluding from reporting requirements those entities regulated by existing regimens with existing beneficial ownership reporting processes. For example, publicly traded companies, investment vehicles operated by independent advisors, nonprofits and government entities, are all exempted from CTA’s reporting requirements. Further, likely the broadest exception, entities that:

•  employ more than twenty employees,
• filed in previous year a tax return demonstrating more than $5 Million in gross receipts or sales, AND
• have an operating presence at a physical office within the USA; and subsidiaries of such qualifying entities, are exempt from CTA’s reporting requirements.

Reporting requirements under the Corporate Transparency Act

Every reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a driver’s license or passport) – collectively, referred to as the “beneficial ownership report.” There is no corresponding fee due with the report. Additionally, reporting companies formed on or after January 1, 2024, must report its company applicants (individuals directly or indirectly responsible for causing its formation.

Who is a “beneficial owner”?

A beneficial owner of an entity (ie a reporting company) is any individual who, directly or indirectly (i) exercises substantial control over such entity (meaning an individual that directs, determines, or has substantial influence to make important decisions about a reporting company’s business, finances, and structure) OR (ii) owns or controls not less than 25% equity in such entity. Excluded from beneficial owners are:

• minor children (so long as such minor’s parent or guardian’s information is reported),
• an individual acting as an intermediary or agent on behalf of another,
• a person whose control over such entity derives solely from their employment,
• a person whose control over such entity is through a right of inheritance, OR
• a creditor of such entity (unless they qualify as a beneficial owner through substantial control or equity ownership.

Corporate Transparency Act reporting deadlines

Reporting begins January 1, 2024, and reports will not be accepted before such date. For reporting companies in existence before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership report. A reporting company created on or after January 1, 2024, but before January 1, 2025, will have 90 calendar days after notice of its creation or registration to file its initial beneficial ownership report. A reporting company created on or after January 1, 2025, will have 30 calendar days after notice of its creation or registration to file its initial beneficial ownership report. For purposes of foreign (non-USA) entities, the timeframe for existence shall be when such entities register for business within the USA.

Corporate Transparency Act reporting process

Reporting companies can submit their beneficial ownership report to FinCen electronically through a secure filing system available on FinCen’s website – Beneficial Ownership Information Reporting | FinCEN.gov. Anyone whom the reporting company authorizes to act on its behalf (such as an employee, owner, or third-party service provider) may file the report on its behalf. When submitting the report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number.

More information

For additional guidance and to determine whether your entity qualifies for an exemption, you can visit https://www.fincen.gov/boi/small-business-resources. If you require further assistance, please contact our office to see if we can help.

Melissa Cassell is a partner with Morton & Gettys LLC in Rock Hill, SC. Her practice includes business and corporate law as well as litigation.

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