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THE CORPORATE TRANSPARENCY ACT: NEWLY ENACTED REPORTING REQUIREMENTS UNDER FEDERAL LAW

THE CORPORATE TRANSPARENCY ACT: NEWLY ENACTED REPORTING REQUIREMENTS UNDER FEDERAL LAW

February 2, 2024 by Maylynn

February 2nd, 2024 - Posted in Client Alert by Jeffrey Bast and Tanisha Wright

We hope you and your business are doing well and that the New Year is off to a great start. We wanted to direct your attention to a new federal law that may require immediate action from your business.

The Corporate Transparency Act
The Corporate Transparency Act (“CTA”), enacted by Congress in 2021 as an initiative to prevent illicit finance, went into effect on January 1, 2024. The CTA establishes disclosure requirements for “reporting companies” in the United States. Because failure to meet these disclosure requirements could result in civil or criminal penalty, we encourage any business entity to determine whether it is subject to the CTA and, if so, to take steps necessary steps to comply with the CTA’s requirements.

Entities Subject to the CTA
The CTA requires “reporting” companies conducting business in the United States to report information about the company itself and its “beneficial owners.” Reporting companies include corporations, limited liability companies, or any other similar entity that is created by either filing a document with the secretary of state or similar office under state law, including foreign companies conducting business in the United States.[1] A beneficial owner includes any person who directly or indirectly exercises “substantial control” over the entity or “owns” or “controls” at least 25% of the entity’s “ownership interests.”[2]

Individuals exercising substantial control have a certain degree of power over the company and could include (a) senior officers or directors of the company; (b) anyone with the power to appoint or remove senior officers or a majority of the company’s directors; or (c) anyone who has substantial influence over important company decisions. There is no maximum number of beneficial owners who must be reported, but each reporting company must include at least one person who qualifies as a beneficial owner.

Exempted Entities
There are certain exempted entities that are not considered reporting companies under the CTA, including banks, credit unions, tax-exempt entities, public-utility companies, and large operating companies. An entity is considered a large operating company when the entity (i) employs more than 20 full-time employees in the United States; (ii) filed Federal income tax returns in the previous year (in the United States) demonstrating more than $5 million in gross receipts or sales; and (iii) has an operating presence at a physical office within the United States.[3]   A list of the 23 exempted categories can be found at www.fincen.gov/boi-faqs.

Disclosure Requirements
Any company subject to the CTA must report the entity’s (a) full legal name; (b) trade name or d/b/a name; (iii) address; (iv) jurisdiction of formation or registration; and (v) federal tax identification number. The report must additionally include information about its beneficial owners, including the owner’s (a) full legal name; (ii) birthdate; (iii) home address; (iv) an identifying number from a driver’s license, passport, or other approved documents; and (v) an image of the approved documents that contains the identifying number. Existing companies that were formed before January 1, 2024, must file their initial reports by January 1, 2025. Companies formed after January 1, 2024, must file their initial reports 90 days after receiving notice of their creation and registration and must also include information about the company’s applicant. Moreover, any changes in the reported information, such as shifts in beneficial ownership or management, must also be reported within 30 days of the change.

Bast Amron, LLP as Your Guide
The reporting requirements under the CTA can be complex and the civil and criminal penalties for failing to disclose or update information properly can be severe (up to $500 per day in violation or up to two years imprisonment). Bast Amron, LLP is ready to assist our clients and other companies in determining whether they are subject to the disclosure requirements of the CTA; and if you are, we can ensure full compliance in filing the required company disclosure report. Should you have any questions, please contact us.

[1] 31 U.S.C.A. § 5336 (a) (11)

[2] Id. at (a)(3)

[3] 31 U.S.C.A. § 5336 (a) (11) (B) (xxi)

We hope you and your business are doing well and that the New Year is off to a great start. We wanted to direct your attention to a new federal law that may require immediate action from your business.

The Corporate Transparency Act
The Corporate Transparency Act (“CTA”), enacted by Congress in 2021 as an initiative to prevent illicit finance, went into effect on January 1, 2024. The CTA establishes disclosure requirements for “reporting companies” in the United States. Because failure to meet these disclosure requirements could result in civil or criminal penalty, we encourage any business entity to determine whether it is subject to the CTA and, if so, to take steps necessary steps to comply with the CTA’s requirements.

Entities Subject to the CTA
The CTA requires “reporting” companies conducting business in the United States to report information about the company itself and its “beneficial owners.” Reporting companies include corporations, limited liability companies, or any other similar entity that is created by either filing a document with the secretary of state or similar office under state law, including foreign companies conducting business in the United States.[1] A beneficial owner includes any person who directly or indirectly exercises “substantial control” over the entity or “owns” or “controls” at least 25% of the entity’s “ownership interests.”[2]

Individuals exercising substantial control have a certain degree of power over the company and could include (a) senior officers or directors of the company; (b) anyone with the power to appoint or remove senior officers or a majority of the company’s directors; or (c) anyone who has substantial influence over important company decisions. There is no maximum number of beneficial owners who must be reported, but each reporting company must include at least one person who qualifies as a beneficial owner.

Exempted Entities
There are certain exempted entities that are not considered reporting companies under the CTA, including banks, credit unions, tax-exempt entities, public-utility companies, and large operating companies. An entity is considered a large operating company when the entity (i) employs more than 20 full-time employees in the United States; (ii) filed Federal income tax returns in the previous year (in the United States) demonstrating more than $5 million in gross receipts or sales; and (iii) has an operating presence at a physical office within the United States.[3]   A list of the 23 exempted categories can be found at www.fincen.gov/boi-faqs.

Disclosure Requirements
Any company subject to the CTA must report the entity’s (a) full legal name; (b) trade name or d/b/a name; (iii) address; (iv) jurisdiction of formation or registration; and (v) federal tax identification number. The report must additionally include information about its beneficial owners, including the owner’s (a) full legal name; (ii) birthdate; (iii) home address; (iv) an identifying number from a driver’s license, passport, or other approved documents; and (v) an image of the approved documents that contains the identifying number. Existing companies that were formed before January 1, 2024, must file their initial reports by January 1, 2025. Companies formed after January 1, 2024, must file their initial reports 90 days after receiving notice of their creation and registration and must also include information about the company’s applicant. Moreover, any changes in the reported information, such as shifts in beneficial ownership or management, must also be reported within 30 days of the change.

Bast Amron, LLP as Your Guide
The reporting requirements under the CTA can be complex and the civil and criminal penalties for failing to disclose or update information properly can be severe (up to $500 per day in violation or up to two years imprisonment). Bast Amron, LLP is ready to assist our clients and other companies in determining whether they are subject to the disclosure requirements of the CTA; and if you are, we can ensure full compliance in filing the required company disclosure report. Should you have any questions, please contact us.

[1] 31 U.S.C.A. § 5336 (a) (11)

[2] Id. at (a)(3)

[3] 31 U.S.C.A. § 5336 (a) (11) (B) (xxi)

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Maylynn Menoud  | Marketing Director
T: (305) 379-7904 | D: (305) 357-4794
mmenoud@bastamron.com

BAST AMRON is a boutique law firm focused on business insolvency and litigation. Our insolvency practice emphasizes workouts, restructurings, liquidations, bankruptcy, and bankruptcy avoidance. We represent debtors, creditors, committees, trustees, and other fiduciaries in bankruptcies, receiverships, and assignments for the benefit of creditors. Our litigation practice is primarily plaintiff oriented. We know how to investigate, formulate and prosecute claims arising from business disputes. By combining our business insolvency knowledge with our extensive courtroom experience, we successfully guide our clients through all aspects and types of commercial litigation in state and federal courts across the country. Whether the issue is litigation or insolvency or both, we view our clients’ needs through a holistic lens to formulate and implement dynamic solutions to their most important challenges.

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