With the advent of 2024, the reporting requirements of the Corporate Transparency Act commence. If your company has an operating presence in the U.S. and is not exempt from reporting, and your company was formed before January 1, 2024, your company is deemed a “reporting company” under the law and an initial BOI report will have to be submitted to the Financial Crimes Network arm of the Treasury Department – i.e., FINCEN – before January 1, 2025. For new companies formed on or after January 1, 2024, their initial BOI report will be due within 30 days after formation. Note, for those companies formed before January 1, 2025, FINCEN is currently proposing to increase the timing for a company’s initial BOI report to within 90 days of formation.
What companies are exempt? The Corporate Transparency Act provides 27 exemptions to the definition of “reporting company.” Most small, private for-profit companies – i.e., any entity that employs less than 20 full-time employees or reported $5,000,000 or less in gross receipts or sales on their previous year’s 1120, 1120S, or 1065 – will be considered a reporting company and required to make an initial report. Many heavily regulated companies and companies already subject to ownership information reporting. Examples include banks and many publicly-traded companies. Organizations qualified as a 501(c)(3) organizations are also exempt. It is very important to note, once a company no longer qualifies for an exemption from reporting, it becomes a reporting company
What will have to be reported? If your company is not exempt from reporting, the following information about the company will have to be reported initially: full legal name and dba, address of primary location in the U.S., state or other jurisdiction of formation, and EIN/TIN. More obtrusively, the following information will have to be reported for each “beneficial owner”: full legal name, date of birth, address of residence, identification number set forth on a non-expired government-issued identification documents (e.g., passport or driver’s license), and an image of that document. If the company was formed on or after January 1, 2024, the same personal information will have to be reported for the “company applicant.” The company applicant is the one or two people who were responsible for the actual formation of the company.
Who are “beneficial owners” of the reporting company? In a nutshell, any individual (unless subject to an exception) who directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company. Individuals falling under the definition of “substantial control” include senior officers, persons having authority over appointment or removal of any senior officer, persons who have substantial influence over important decisions of the reporting company. Examples of excepted individuals include minors, agent acting on behalf of another individual, employees acting solely as employees (other than senior officers), and holders of a future ownership interest merely due to right of inheritance.
What more is there to know? A lot. The devil is always in the details. FINCEN has posted a 56-page guide to help companies understand their initial and continuing reporting requirements under the Corporate Transparency Act, if any, which can be found here. Thomas & Libowitz, P.A. is also available to help clients navigate what they need to know and how to be compliant with the Corporate Transparency Act.
What should be done NOW? All companies should evaluate now whether they are exempt from the reporting requirements of the Corporate Transparency Act. If not exempt, reporting companies should be identifying who in their organization will be responsible for compliance reporting and getting them educated on the reporting requirements and the reporting portal created by FINCEN. Procedures should be developed and put in place promptly for identifying the individuals who fall within the definition of “beneficial owners” and “company applicant” and collecting the required information from them, based on applicable reporting timeline. Also, procedures will have to be adopted for reporting to the compliance designee changes in the reporting company’s or beneficial owner’s information, as all with have to be reported to FINCEN, as well as periodically checking whether the reporting company has become exempt from reporting (e.g., because of growth in revenue and number of full-time employees).
Still have questions or help with planning? Reach out to C.J. Persson or any of her colleagues at Thomas & Libowitz, P.A. C.J. can be reached at 443.927.2115 or cjpersson@tandllaw.com.