RE: Corporate Transparency Act Required Registration
I don’t like sending out long complicated posts, but this is a new federal requirement for companies. Since it is federal, it is complicated and full of definitions.
Congress and the President of the United States enacted the Corporate Transparency Act (“CTA”) on January 1, 2021. The final regulations have been finalized.
This law requires that most businesses register with the Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of Treasury.
If your company was created by completing paperwork with the Secretary of State (with some exceptions listed below), your company is required to file!
If you want our help, please reach out to us. WE ARE NOT RESPONSIBLE FOR YOUR FILING. YOUR COMPANY MUST FILE. There are unresolved questions if I file for you and the information is incorrect that I may be held liable for the incorrect filing.
If we formed your company, we are the “incorporator.” Please call to get my FinCEN ID to use in your report.
- What do I need to file? A list of all “beneficial owners,” their home address, and a copy of a valid state issued or federally issued photo id.
- Where do I file? https://boiefiling.fincen.gov/
- For more information: https://www.fincen.gov/boi-faqs#B_1 https://www.fincen.gov/boi/small-entity-compliance-guide
- What is my company is inactive or no longer valid? If it was formed after December 31, 2022 it MUST BE REGISTERED. Then you need to take the steps to formally dissolve it and report that it is dissolved.
- What are the penalties for not filing? HEAVY. The penalties include a $500.00 per day fine for not filing in time, a fine for willfully failing to report, and criminal penalties of up to 2 years in prison and a $10,000.00 fine.
OVERVIEW:
There will be more detailed information after this, but here is the overview.
This report must include company information and a list of the “Beneficial Owners.”
They call companies “Reporting Companies.” A company is a Reporting Company only if it was created (or, if a foreign company, registered to do business) in the United States, by filing a document with a secretary of state or similar office under laws of a State or Indian Tribe. For most states, this would include LLC’s and corporations.
“State” includes D.C., Puerto Rico, Northern Marianas, Amer. Samoa, Guam, USVI, and any other commonwealth, territory or possession of the United States.
Common law trusts and general partnerships are not Reporting companies, but this may change in the future.
A Beneficial Owner is somebody who owns 25% or more of the company or can exercise substantial control over the company. This includes all “C” level executives, and all senior officers. A Beneficial Owner does not include a minor child, an employee who is not a senior officer, a future interest or right or inheritance in the company. However, the grantor, beneficiary, or trustee of a trust may be a Beneficial Owner.
An individual exercises substantial control if they are a senior officer; have the authority to appoint or remove a senior officer or the majority of the board of directors; direct, determine, or have substantial influence over important decisions; or have any other form of substantial control.
Each Reporting Company must file its own BOI Report–a parent company cannot file for itself and its subsidiaries.
Companies formed before January 1, 2024 have until January 1, 2025 to file. THIS INCLUDES ANY COMPANY! Even if it is not an active company the company MUST register if it was not dissolved before December 31, 2023. An inactive company should file for dissolution with the state and file an amended report with FinCEN.
Companies formed on or after January 1, 2024 will have 90 days to file in 2024.
In 2025, companies will have 30 days to file after formation.
The filing period begins on earlier of date company receives actual notice that its creation or registration is effective, or date the applicable secretary of state (or similar office) first provides public notice.
The Reporting Rules’ definitions of ownership and control so broad even small Reporting Companies need to establish and maintain a reminder system, and periodically review it, to detect changes potentially requiring updated BOI Report within 30 days of an event.
IF IN DOUBT, REGISTER!
Filing of BOI Report can be done by fillable PDF upload, or live on FinCEN website. See https://boiefiling.fincen.gov/resources/BOIR_E-File_PDF_Step-by-Step_Instructions.pdf
MORE INFORMATION
https://www.fincen.gov/boi/small-entity-compliance-guide
PENALTIES
Both individuals and Reporting Companies can be held liable for willful violations, including willfully failing to report complete or updated beneficial ownership information.
The Final Reporting Rule provides that a person is considered to have failed to report complete or updated beneficial ownership information if the person causes the failure or is a senior officer of the entity at the time of the failure.
This can include not only an individual who actually files (or attempts to file) false information with FinCEN, but also anyone who willfully provides the filer with false information to report.
Definition of “willful”—CTA Sec. 5336 (g)(6) defines “willfully” as the “voluntary, intentional violation of a known legal duty”:
- Not required to be evil intent
- Willful blindness
- Conscious or intentional disregard
- Recklessness?
- Negligence?
CTA provides that a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues.
- No ceiling on aggregation of daily penalty.
- No relief provision except safe harbor discussed above.
- May also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.
- Potential violations include willfully failing to file a beneficial ownership information report, willfully filing incomplete or false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information, including image of identifying document.
There is some speculation that the Treasury Department may also use the “False Statement Penalties.” This penalty carries up to a 5 year prison sentence.
HOW TO REGISTER
Registration can be done through the Beneficial Owner Information Technology system (“BO IT”).
It is best to have all required beneficial ownership information available before registration.
Filing of BOI Report can be done by fillable PDF upload, or live on FinCEN website. See https://boiefiling.fincen.gov/resources/BOIR_E-File_PDF_Step-by-Step_Instructions.pdf
You can save and resume PDF, but not the web version. If you have frequent changes, the PDF is recommended.
Filing may be done by an employee, owner, or third-party service provider, or anyone authorized by the Reporting Company to act on its behalf. The filing individual must provide basic contact information, including their name and email address or phone number.
BOI Report must include:
- Information about Reporting Company:
- Legal name and any trade names
- Current street address of principal place of business if in the U.S., or if outside the U.S., its U.S. headquarters
- Jurisdiction of formation or registration
- Taxpayer Identification Number (or, if a foreign Reporting Company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction)
- Information about the applicant or incorporator
Information about beneficial owners, application, and incorporator:
- Name
- Date of birth
- Residential address
- An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document
- An image of the identification document used to obtain the identifying number
UPDATES
Update filing requires entire new BOI Report; cannot merely note the change, but using and saving PDF version makes it easier.
Examples of events potentially requiring update:
- Shareholder change—over/under 25% threshold
- Sale or merger
- Stock grants to employees affecting beneficial owner computation
- Change in officer duties and authority –senior officer
- Change in board composition if affecting reported substantial control
- Issuance of debt obligation, even without traditional conversion rights
- Change in credit terms or default causing activation of lender rights
- Contract with third party affecting control
- New d/b/a or t/a for company
- Disputes among beneficial owners, or family disputes, that implicate ownership or control
- Becoming an exempt company after Jan. 1, 2024
- Company termination, but no FinCEN guidance for how to report
- Amendment or revocation of wills, trust, powers of attorney
Examples of other potential events requiring updated report:
- Beneficial owner (including substantial control person) death (when estate “settled”)
- Beneficial owner illness, incapacity or divorce
- Gift or inheritance increasing beneficial ownership to 25% or more
- Minor beneficial owner attaining age of majority
- Beneficial owner name change through marriage, divorce or otherwise
- Change of address for business or beneficial owner
- New driver’s license or passport (with any change in name, date of birth, address or unique number on previously submitted identifying document), or new document from another jurisdiction (not stated in regulations, but obvious if new jurisdiction)
- Loss of exempt status (initial report)
EXEMPTIONS
The following types of companies are exempt:
- Public company
- Governmental authority
- Bank, as defined in certain statutes
- Securities reporting issuer
- Credit union
- Depository institution holding company
- Money services/money transmitting business registered with FinCEN
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Public utility
- Financial market utility
- Pooled investment vehicle
- Large Operating Companies (more than 20 U.S. employees and more than $5,000,000 in revenue last year)
WHAT IS A BENEFICIAL OWNER?
“Beneficial owner” means, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise—
- Exercises substantial control over the entity; or
- Owns or controls not less than 25 percent of the ownership interests of the entity
Beneficial owner DOES NOT include:
- A minor child, as defined under the law of the State or Indian tribe in which a domestic Reporting Company is created or a foreign Reporting Company is first registered (if parent or guardian information is provided)
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
- An employee of a Reporting Company, acting solely as an employee and not as a senior officer, whose substantial control over or economic benefits from such entity are derived solely from the employment status of the employee
- An individual whose only interest in a Reporting Company is a future interest through a right of inheritance
WHAT IS AN OWNERSHIP INTEREST
An ownership interest is broadly defined and includes:
- Any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights;
- Any capital or profit interest in an entity;
- Any instrument convertible, with or without consideration, into any share or instrument described in paragraph (d)(2)(i)(A), or (B) of this section, any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest described in paragraph (d)(2)(i)(A), or (B) of this section, regardless of whether characterized as debt;
- Any put, call, straddle, or other option or privilege of buying or selling any of the items described in paragraph (d)(2)(i)(A), (B), or (C) of this section without being bound to do so, except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; or
- Any other instrument, contract through which an individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise, including:
- Joint ownership with one or more other persons of an undivided interest in such ownership interest;
- Through another individual acting as a nominee, intermediary, custodian, or agent on behalf of such individual;
- With regard to a trust or similar arrangement that holds such ownership interest:
- As a trustee of the trust or other individual (if any) with the authority to dispose of trust assets;
- As a beneficiary who:
- Is the sole permissible recipient of income and principal from the trust; or
- Has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or
- (3) As a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust; or