In 2021, Congress passed The Corporate Transparency Act into law to create a national database of information concerning the individuals who, directly or indirectly, own a substantial interest in, or hold substantial control over certain domestic and foreign legal entities. The purpose of the law is to combat money laundering and the concealment of illicit money through shell companies in the United States.
Starting in 2024, Reporting Companies i.e. corporations, limited liability companies, limited partnerships, and other entities that file formation papers with a state’s Secretary of State office (or similar government agency) must file a report with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the entity’s “Beneficial Owners”. https://www.fincen.gov/boi
Newly formed “Reporting Companies” will need to file the Beneficial Ownership Information (“BOI”) report with FinCEN, a bureau of the U.S. Department of Treasury, beginning on January 1, 2024. Companies formed after January 1, 2024, will have 30 days after formation to file the BOI report with FinCEN. Reporting Companies formed prior to January 1, 2024, will have until December 31, 2025, to file the BOI report with FinCEN.
Willful failure to report information and timely update any changed information can result in significant fines of up to $500 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000 and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.
There are certain categories of businesses which are exempt from reporting including tax-exempt entities and large operating corporations. Large operating corporations must have more than 20 full-time employees in the United States, a physical office in the United States, and more than $5 million in U.S. Gross receipts.
FinCEN will make public/initiate the Beneficial Ownership Secure System (“BOSS”) where the BOI report must be electronically filed. This became operational on January 1, 2024.
A Reporting Company must disclose information about itself, Company Applicants, and Beneficial Owners. The Reporting Company must certify that the information is true, accurate and complete. The Reporting Company must disclose about itself:
– Its full legal name;
– Any names under which it does business;
– A principal business address;
– The jurisdiction of formation;
– A taxpayer identification number; and
– If a foreign entity, must disclose the U.S. jurisdiction where the company first registers.
There are two categories of Beneficial Owners: (1) those who exercise substantial control over the Reporting Company and (2) those who are 25% owners of the Reporting Company.
An individual exercises substantial control over a Reporting Company if the individual meets any of four general criteria:
1) Individual is a senior officer;
2) Has authority to appoint or remove officers or a majority of directors;
3) Is an important decision-maker; or
4) Has other forms of substantial control over the Reporting Company. (Cath-All)
For each individual who is a Beneficial Owner, a Reporting Company will have to provide:
– The individual’s name;
– Date of Birth;
– Residential address; and
– Unique identifying number from a passport, driver’s license, or other identifying document. The Reporting Company must report a copy of the chosen document.
A Company Applicant is the individual who filed the formation or registration document for the Reporting Company and the individual “primarily responsible for directing or controlling such filing,” if any. There can be no more than two Company Applicants and this definition includes attorneys and assistants if they are the individuals filing corporate formation documents. Company Applicants will need to disclose the same information as Beneficial Owners except they will provide their business address instead of their personal address. Only individuals who become Company Applicants after January 1, 2024, need to be disclosed.
Company Applicants and Beneficial Owners can apply for a FinCEN identifier number. Once obtained, they only need to provide the necessary information to FinCEN once and then simply share their FinCEN Identifier number with the Reporting Company. If the Individual is the Company Applicant or Beneficial Owner of multiple entities, only the FinCEN Identifier number needs to be provided.
IMPACT ON TRUST ADMINISTRATION
Trusts are exempt from filing under the Act unless they own an interest in or control a Reporting Company.
For trusts that own an interest in a Reporting Company, the following individuals will be considered beneficial owners:
1) Any trustee, direction advisor, protector, designated representative, or other individual acting on behalf of the trust (whether a fiduciary under state law or not):
– Who has the power to dispose of trust assets when the trust(s) and such individual (collectively) holds at least a 25% ownership interest in the Reporting Company;
– Who controls a majority of the voting power or voting rights of the Reporting Company;
– Who directs, determines, or has substantial influence over important decisions made by the Reporting Company;
– With the right to remove and replace senior officers of the Reporting Company;
– With the right to remove and replace a majority of the board of directors of the Reporting Company;
2) Any trustee of a trust(s) where the trust owns a majority of the voting power or voting rights in the Reporting Company; and
3) Certain beneficiaries of a trust(s) where the trust owns a majority of the voting power or voting rights in the Reporting Company.
WHAT CAN YOU DO NOW TO PREPARE?
1) Secure FinCEN Identifier numbers as soon as possible for those that need one.
2) Determine who must file and when. This may require analysis from your legal counsel or management team. Do this sooner than later to file the BOI timely.
3) Do Not Worry. The information you provide to FinCEN regarding the Reporting Company is the same information you need to provide to the Secretary of State except you must include the Tax ID Number and the FinCEN identifier number of the Beneficial Owner and the Company Applicant. The database is not open to public view. Your Reporting Company will continue to provide you with asset protection and other administrative advantages.
