You Only Have 30 Days Left! (The Corporate Transparency Act)

A famous quote from Spider-Man’s Uncle Ben is “with great power comes great responsibility.” I guess the same could be said for running a business. The “great power” being the unlimited earning potential and the “great responsibility” including being accountable for everything: taxes, compliance, marketing, sales, management, etc.

Well, get ready to add one more item to the “great responsibility” column: Corporate Transparency Act compliance.

What is the Corporate Transparency Act?

The Corporate Transparency Act is a federal law passed by Congress to combat the rise of financial crimes used to fund terrorism. Historically, these groups have used business entities to form a chain of shell corporations which hides their identities while being able to move money into and out of the United States to fund their illicit activities. The Corporate Transparency Act (the “CTA”) combats these practices by requiring all business entities created by state governments, like LLCs and corporations, to file a Beneficial Ownership Information Report (a “BOI Report”) with the Financial Crimes Enforcement Network (“FinCEN.”)

Rolling out the CTA has been a complicated process. Despite initially being passed by Congress on January 1, 2021, the final rule implementing the CTA’s BOI Report provisions was not implemented by FinCEN until September 29, 2022. That final rule set an effective date of January 1, 2024, for the BOI’s reporting provisions. On that date the amount of time you have to file your BOI Report with FinCEN was set.

When Is My Beneficial Ownership Interest Report Due?

If you are a “Reporting Company” (will be defined shortly) that was formed before January 1, 2024, your BOI Report is due before January 1, 2025.

If you are a “Reporting Company” that has formed during 2024, you have 90 days from the date of formation (the date your corporation’s Articles of Incorporation or limited liability company’s Articles of Organization are effective) with your state’s department of state or similar government office to turn in your BOI Report.

If you are a “Reporting Company” and you’re forming after January 1, 2025, you’ll have 30 days from the date of formation with your state’s department of state or similar government office to turn in your BOI Report.

What Is a Reporting Company?

So, what is a Reporting Company? According to FinCEN, a reporting company is a domestic or foreign “corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.” FinCEN has also stated that it expects the definition of “reporting company” to include “limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships” because they are created by a filing with a state secretary of state or similar office.

There are numerous exemptions to the definition of a Reporting Company, which would make a business entity exempt from the BOI Report requirements, 23 to be exact. All companies covered by these exemptions are already required to report similar information found on a BOI Report to the federal government. Examples include banks, insurance companies, tax-exempt organizations, and every type of company in the securities industry.

What Do I Have to Disclose?

So, what goes on a BOI Report anyway, you ask? Well, if you’re a Reporting Company, you’ll have to disclose the identities of individuals who exercise “substantial control” over the Reporting Company or own or control at least 25% of the “ownership interest” of the Reporting Company.

You exercise Substantial Control over a Reporting Company if you’re a Senior Officer (C-Suite executive or other similar position), you can appoint or remove Senior Officers, you are an important decision-maker, which means you can change the nature of the business or make foundational decisions regarding the business’ finances or structure.

You own an Ownership Interest in a Reporting Company if you own any of the following in a Reporting Company: equity, stocks, voting rights, a capital or profit interest, a convertible note, option or privilege.

It’s important to note that even if you don’t own 25% of a reporting company, if you’re the proxy for at least 25% of the ownership interest, you’ll still be subject to disclosure on the BOI Report.

It’s also important to note that it’s an “or” not an “and”, meaning that meeting either criterium will require disclosure in a Reporting Company’s BOI Report.

What If I Just Don't File It?

FinCEN has outlined civil and criminal penalties for not submitting your BOI Report on time. According to FinCEN, “[a] person who willfully violates beneficial ownership reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000.”

Clock's Ticking, Let TealAcre Tackle the Task!

As we head into December, please keep in mind that if you formed your Reporting Company before January 1, 2024, haven’t filed your BOI Report yet, the clock is ticking and there’s only thirty days left as of the writing of this article.

If you haven’t completed your BOI Report, we can help you get it sorted.

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