If you have a small company in the U.S. with less than 20 employees, you need to be aware of a new law that directly impacts your business. The Corporate Transparency Act (the “CTA”) requires you to provide information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) as to the ultimate beneficial owners of the company. Please note that the deadline for existing entities to file is December 31, 2024.
Background
- The CTA requires existing and new U.S. corporations, limited liability companies, limited partnerships, and limited liability partnerships (“reporting companies”) to file reports with the federal government regarding their beneficial owners, that is, the persons who ultimately own or control the company.
- The CTA is an expansion of anti-money laundering laws and is intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.
Disclosure of Beneficial Owners
- A “beneficial owner” is any individual who, directly or indirectly, either:
- exercises substantial control over the reporting company; or
- owns or controls 25% or more of the ownership interests of the reporting company.
- An individual has “substantial control” if the individual meets any of four general criteria: (i) the individual is a senior officer; (ii) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (iii) the individual is an important decision-maker; or (iv) the individual has any other form of substantial control over the reporting company.
- “Owns or controls” includes the following: equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.
- The interest may be indirect. For example, owning or controlling one or more intermediary entities, or the ownership interests of any intermediary entities, that separately or collectively own or control ownership interests of a reporting company.
- A reporting company may have multiple beneficial owners.
- Need to disclose the following information about each beneficial owner:
- Full name
- Date of Birth
- Address
- Unique identifying number and issuing jurisdiction and image of one of the following:
- US passport
- State driver’s license
- Identification document issued by state, local government, or tribe
- If none of the above, foreign passport
Access to Beneficial Ownership Information
- FinCEN will store the beneficial ownership information reported in a secure nonpublic database (Beneficial Ownership Secure System – “BOSS”).
- FinCEN may disclose the reported beneficial ownership information only on receipt of a request, made through appropriate protocols, by:
- US federal agencies engaged in national security, intelligence, or law enforcement activities, for use in furtherance of those activities;
- A state, local, or tribal law enforcement agency, with the authorization of a court of competent jurisdiction;
- A federal agency on behalf of non-US law enforcement or a foreign prosecutor or judge;
- A financial institution subject to customer due diligence requirements, with the consent of the reporting company, to facilitate the financial institution’s compliance with customer due diligence requirements under applicable law;
- Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; or
- Officers and employees of the Treasury Department for tax administration purposes.
Dates and Consequences
- The report may be filed online, please see more information at the FinCEN BOI website.
- Existing reporting companies have until December 31, 2024 to file a report.
- Companies created on or after January 1, 2024 have 90 calendar days of receiving actual notice that the registration is effective to file a report.
- Updates and corrections to beneficial ownership information require the filing of a report within 30 days.
- Penalties for noncompliance or misuse of beneficial ownership information fall under two categories:
- Civil and criminal penalties for willful reporting violations, including fines of up to $10,000 and imprisonment for not more than two years.
- Civil and criminal penalties for unauthorized disclosure and use of beneficial ownership information also exist.
Exemptions
- Reporting is not required if the entity qualifies for one of 23 exemptions. Most of the exemptions relate to entities that already are subject to regulation, given that the beneficial ownership of those entities is already is known.
- These exemptions are: (i) entities that file reports with the SEC; (ii) governmental authority; (iii) banks; (iv) credit unions; (v) depository institution holding company; (vi) money services business; (vii) broker or dealer in securities; (viii) securities exchange or clearing agency; (ix) other Exchange Act registered entity; (x) investment company or investment advisor; (xi) venture capital fund advisor; (xii) insurance company; (xiii) state-licensed insurance producer; (xiv) Commodity Exchange Act registered entity, (xv) accounting firm; (xvi) public utility; (xvii) financial market utility; (xviii) pooled investment vehicle; (xvix) tax-exempt entity; (xx) entity assisting a tax-exempt entity; (xxi) large operating company; (xxii) subsidiary of certain exempt companies; and (xxiii) inactive entity.
- Noteworthy exemption for “large operating entities” that have:
- At least 20 full-time employees in the U.S.;
- More than $5 million in gross revenue; and
- A physical location in the U.S.
What you Should Do to Prepare
- Analyze whether your company qualifies for an exemption.
- If not, compile the relevant information necessary to complete the filing.
For assistance with this filing, or for more information, please contact your designated Gibney representative or email info@gibney.com.