In January 2021, Congress passed the Corporate Transparency Act, 31 U.S.C. §5336 (“Act”), which provides for, among other things, the reporting and collection of beneficial ownership information for applicable entities. The intent behind the act is that “malign actors” seek to conceal their ownership in entities to facilitate illicit activity, and federal legislation is needed to protect against and counter such illicit activities in the U.S. With that as a background, this post provides a general overview of the Act with respect to entities. This post is not intended to be relied upon by any individuals or entities for any legal purpose and appropriate professionals should be consulted with for such purposes.
What is the Corporate Transparency Act, 31 USC 5336 (Act)?
The Corporate Transparency Act, 31 USC 5336, among other things, requires every corporation, LLC, or other similar entity that meets the definition of a “reporting company” to make a filing with FinCEN identifying its beneficial owner information. On September 29, 2022, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule implementing the beneficial ownership information (BOI) reporting requirements. The rule describes who must file a BOI report, what information must be reported, and when a report is due. The effective date for the final rule and reporting is January 1, 2024.
What is a “Reporting Company”?
There are two types of reporting companies, domestic reporting company and foreign reporting company:
A domestic reporting company is any corporation, LLC, or other similar entity that is created by filing a document with the Secretary of State or a similar office under the law of a State or Indian Tribe. A foreign reporting company is any corporation, LLC, or other similar entity formed under the law of a foreign country and registered to do business in the United States by the filing a document with the Secretary of State or a similar office under the laws of a State or Indian Tribe.
What is an “Other Similar Entity”?
The FinCEN final rule does not define other similar entity types, but FinCEN explains that it expects other similar entity types to include limited liability partnerships, limited liability, limited partnerships, business trusts, and most limited partnerships. Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that in many states the creation of most trusts typically does not involve the filing of such a formation document.
Exempt Entities
There are 23 exemptions from the definition of a reporting company, which include, but are not limited to, the following:
Large Company Exemption:
• More than 20 full-time employees in US.
• Filed in the previous year Federal income tax returns in the US reporting gross receipts or sales in excess of $5 million in the aggregate.
• Includes gross receipts and sales from other entities owned by the company and through which the company operates.
• Excludes gross receipts and sales from sources outside the US.
• Operating presence at a physical office within the US.
• Owns or leases office that is physically distinct from the place of business of any other unaffiliated entity.
Entities already subject to close federal regulation or supervision:
• Companies reporting under Sec. 12 or Sec. 5(d) of the Securities Exchange Act
• Investment companies
• Non-profit entities exempt from taxation under Sec. 501(c) of the IRC
• Financial institutions
• Insurance companies
• Public utilities
• Broker-dealers
• Pooled investments (i.e., mutual funds; ETFs)
Other entities:
• An entity owned or controlled by an otherwise exempt entity
• Dormant entities as defined by the Act
When must the report be filed?
Reporting begins January 1, 2024. All reporting companies created or registered on or after January 1, 2024, have to file their initial BOI report within 30 calendar days of receiving notice of their creation or registration. All reporting companies created or registered before January 1, 2024 (e.g., all reporting companies in existence now) have to file their initial BOI report no later than January 1, 2025.
Who is Responsible for Filing and Certification?
While an individual may file a report on behalf of a reporting company, the reporting company is ultimately responsible for the filing. The same is true of the certification. The reporting company will be required to make the certification, and any individual who files the report as an agent of the reporting company will certify on the reporting company’s behalf.
Our attorneys at Starr Law Firm are well-versed in these legal matters and can assist your entity in navigating and complying with the new reporting requirements imposed by this Act.
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