CORPORATE TRANSPARENCY ACT

WHAT IS THE CORPORATE TRANSPARENCY ACT (CTA)?

The Corporate Transparency Act (CTA), 31 U.S.C. 5336 was enacted into law in January of 2021 as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal year 2021.?The Financial Crimes Enforcement Network (FinCEN) implemented the CTA’s beneficial ownership information (BOI) reporting provision so that essential information about small business owners will be stored in a secure, nonpublic, centralized BOI repository that can be readily available and accessible to national security, intelligence, financial institutions, and all law enforcement agencies. The goal of CTA is to protect the United States Security and the United States Financial System by preventing or making it more difficult to use legal business structures to launder money, finance terrorism, corruption, human trafficking, drug trafficking, tax fraud, employee fraud, and hide illicit wealth by forming shell companies. The CTA reporting provisions will go into effect January 1, 2024, where BOI reports will be submitted electronically through an online interface.

WHO HAS TO REPORT BOI UNDER THE CTA AND WHO IS EXEMPT?

The law requires reporting from domestic and foreign reporting companies and characterizes them into two categories of individuals:

???????The beneficial owners of the entity

???????The company applicants of the entity

????????A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by filing a document with the secretary of state or any other similar office under the law of the state or Indian Tribe.?

?A foreign reporting company is a corporation, LLC., or other entity formed under the law of a foreign country that is registered to do business in any state or tribunal jurisdiction by the filing of a document with the secretary of state or any similar office.?

A) BENEFICIAL OWNER

The beneficial owner includes all individuals who, directly or indirectly, either:

1)???Exercises substantial influence or control over important decisions made by the reporting company, or

2)???Owns or controls at least 25 percent of the ownership interest of a reporting company.?Ownership interest includes any other instrument, contract, arrangement, understanding, relationship, or other mechanism used to establish ownership.

There are five types of individuals who are exempt from being a beneficial owner:

1)???Minor children, provided that a parent or guardian’s information is reported. Upon the minor child reaching the age of majority, an updated report will need to be filed within 30 days of the minor child's 18th birthday.

2)???Nominees, Intermediaries, Custodians, and Agents who merely acts on behalf of an individual.

3)???Employees who derive control or economic benefit solely from their status of employment.

4)???Individuals whose only interest is through their right of inheritance. Once an individual acquires an ownership interest in an entity though inheritance, that individual will likely be subject to the beneficial owner reporting requirements.

5)???Creditors who are individuals who are entitled to payments of a reporting company’s debt.

If a beneficial owner is deceased, 31CFR 1010.380(a)(2)(iii), an updated report must identify the?new beneficial owner if the deceased beneficial owner had a property interest or other rights subject to be transferred upon death.

B) COMPANY APPLICANT

The company applicant is an individual who directly files the document to create or register the reporting company and the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing.

? If the company applicant employed a business formation service or law firm, the reporting company would report as company applicants, the individual who prepared the document and the individual who directly filed the document that registers the entity to do business in the United States.

C) THE TWENTY-THREE ENTITIES THAT ARE STATUTORILY EXEMPT FROM BEING A REPORTING COMPANY

1)???Certain types of securities reporting issuers

2)???U.S. Government?

3)???Certain types of banks

4)???Federal or state credit unions

5)???Any bank holding company or any savings and loan holding company

6)???Certain types of money transmitting or money services businesses

7)???Any broker or dealer of securities

8)???Securities exchanges or clearing agencies

9)???Certain types of entities registered with the Securities and Exchange Commission

10) Certain types of Investment Companies registered with the SEC.

11) Certain types of venture capital fund advisors registered with the SEC.

12) Insurance companies

13) State licensed insurance producers with an operating presence at a physical office within the United States, and authorized by a State, and subject to supervision by a State’s insurance commissioner or similar official agency.

14) Commodity Exchange Act Registered Entities.

15) Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Acy 2002.

16) Certain types of regulated public utilities.

17) Any financial market utility?

18) Certain pooled investment vehicles

19) Certain types of tax-exempt entities (i.e. charitable and nonprofit entities)

20) Entities assisting a tax-exempt entity

a)??An entity that operates exclusively to provide financial assistance to, or hold governance rights over a tax-exempt entity,

b)???A United States person,

c)????The entity is beneficially owned or controlled exclusively by one or more persons that are United States citizens or lawfully admitted for permanent residence, and?

d)???Derives at least most of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence.

21) Large Operating companies with at least 20 full-time employees, more than $5,000,000.00 in gross receipts or sales, and an operating presence at a physical office within the United States.

22) The subsidiaries of certain exempt entities

23) Certain types of inactive entities that were in existence on or before January 1, 2020, the date the Corporate Transparency Act was enacted and:

a)????Is not engaged in active business,

b)???Is not owned by a foreign person, whether directly or indirectly, wholly or partially,

c)????Has not experienced any change in ownership in the preceding 12 months period,

d)???Has not sent or received any funds in an amount greater than $1000.00, either directly or through any financial account in which the entity or any affiliate of any entity had an interest , in the preceding 12 month period, and?

e)???Does not otherwise hold any kind of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.?

WHAT SPECIFICALLY NEEDS TO BE REPORTED TO FinCEN UNDER THE CTA WITH REGARDS TO COMPANIES?

??????????In order to ensure that companies are identified, 31 CFR 1010.380(b)(1)(i) requires each reporting company to provide:

1)???The full legal name of the reporting company,

2)???Any trade name or “doing business as” name of the reporting company whether registered or not,

3)???The business street address which the reporting company identifies as their principal place of business,

4)???The state or tribal jurisdiction of formation of the reporting company or for a foreign reporting company, the state or tribal jurisdiction where such company first registers, and?

5)???And IRS TIN of the reporting company or if a reporting company has not yet been issued a TIN, either a Dun & Bradstreet Data Universal Numbering System (DUNS) Number or a legal Entity Identifier (LEI)

6)???A foreign reporting company without a TIN will be required to provide a foreign tax identification number and the name of the relevant jurisdiction.

WHAT SPECIFICALLY NEEDS TO BE REPORTED TO FinCEN UNDER THE CTA WITH REGARDS TO BENEFICIAL OWNERS AND COMPANY APPLICANTS?

???????????31 CFR 1010.380(b)(1)(ii) requires reporting companies to identify each beneficial

owner of the reporting company and each company applicant by:

1) Full legal name,

2) Date of birth,

3)???Current residential address in the United States or in a foreign jurisdiction for beneficial owners,

4)???Current business address in the United States or in a foreign jurisdiction for company applicants who create or register companies in the course of business, and

(Post office boxes, private mailboxes, and addresses of business agents or corporate agents are not acceptable residential street addresses)

5)???Reporting companies existing or registered at the time of the effective date of this law (January 1, 2024) do not need to report information about their company applicants.

6)???Unique identifying number from an acceptable identification document, along with an image of the identifying document. The identification document must specify the jurisdiction that issued the identification document.?

7)???An acceptable identification document is:

a)????A nonexpired passport.

b)???A nonexpired state, local, or Tribal identification document.

c)????A nonexpired state-issued driver’s license.

d)???A nonexpired foreign passport may be used only if the above identification documents are not available.

31 CFR 1010.380(b) requires that each reporting company filing a report must certify that the report is true, accurate, and complete. An individual may file the report on behalf of the reporting company; however, the reporting company is ultimately responsible for the filing and the certification.?The reporting company will be required to certify and any individual who files the report as an agent of the reporting company will certify on the reporting company’s behalf.

WHEN DO COMPANIES NEED TO START REPORTING TO FinCEN?

???????A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOI report.?

???????A reporting company created or registered to do business before January 1, 2023, will not have to report the company applicant.?

???????A reporting company created or registered after January 1, 2024, will have 30 days after receiving notice that their creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration to file their initial report.

???????A reporting company has 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy in the filed report.

???????Reporting companies only need to update information concerning the reporting company or the beneficial owners and not the company applicant. However, reporting companies will still be required to correct any inaccurate information previously reported to include inaccurate information about the company applicant.

???????FinCEN plans on issuing a Small Entity Compliance Guide.

???????The cost associated with preparing and completing BOI a Report depends on whether your business structure is simple, intermediate, or complex.?Currently there are no filing fee for submitting your BOI Report to FinCEN.

CIVIL AND CRIMINAL PENALTIES FOR NONCOMPLIANCE

31 CFR 1010.380(g) makes it unlawful for:

???????Any person in substantial control of a reporting company and the reporting company to willfully fail to report complete and updated information.

???????Any person in substantial control of a reporting company and the reporting company, if such person willfully directs another or they willfully provide false or fraudulent information to be filed with FinCEN by a reporting company.

???????FinCEN will look at all the facts in determining whether any noncompliance was willful before pursing civil and/or criminal enforcement actions.

???????Any person in substantial control of a reporting company and the reporting company are subject to a civil penalty of not more than $500.00 per violation.

???????Any person in substantial control of a reporting company and the reporting company are also subject to a criminal punishment up to $10,000.00 in fines, imprisonment for up to 2 years or both.

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