If you own a company with a presence in the US that has less than $5 million in revenue and fewer than 20 full-time US-based employees, this Client Alert contains important information for you. A new federal law took effect on January 1, 2024, and failure to comply with this law could result in fines of $500 per day and/or criminal penalties.

The new law is called the Corporate Transparency Act (“CTA”). It was enacted to combat money laundering. Under the CTA, all companies that are “reporting companies” must file beneficial ownership reports (“BOI reports”) with the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). In addition, domestic reporting companies formed or foreign reporting companies first registered to do business in the US on or after January 1, 2024, must also provide information about “applicants” of the company.

Who Must File

Generally, unless an exemption applies, a private, for-profit business doing business in the US will be considered a reporting company and must comply with the CTA and file reports with FinCEN. While the specific exemptions are described below, companies are generally exempt based on size and US presence or because they are subject to an alternative regulatory regime.

The exemption based on size is for “large operating companies,” which includes any entity that employs more than 20 full-time employees in the US, has an operating presence at a physical office within the US, and has filed a federal income tax or information return in the US for the previous year that shows more than $5 million in gross receipts or sales (excluding gross receipts or sales from sources outside of the US). 

There are many other exemptions, most of which are based on alternative regulatory regimes (see Question C.2 of the FinCEN FAQs available at https://www.fincen.gov/boi-faqs). These include entities that file reports with the SEC, governmental authorities, banks, credit unions, money services businesses, investment advisors, securities brokers and dealers, tax exempt entities (including certain trusts), certain entities assisting tax exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, inactive entities, subsidiaries of certain exempt entities, accounting firms.

A company that must file a BOI report with FinCEN under the CTA is referred to as a “reporting company” under the new law and its implementing regulations.

What Must Be Filed and When

All reporting companies must file BOI reports. For domestic reporting companies created before January 1, 2024 and foreign reporting companies registered to do business in the US before January 1, 2024, BOI reports are due by January 1, 2025. For domestic reporting companies created on or after January 1, 2024, BOI reports generally must be filed within 30 calendar days after the company is created. For foreign reporting companies created on or after January 1, 2024, BOI reports generally must be filed within 30 calendar days after the company is registered in the US to do business. On November 29, 2023, however, FinCEN amended this rule to extend this deadline to 90 calendar days only for domestic reporting companies and foreign reporting companies first created or registered in 2024. For any reporting companies first created or registered after 2024, the 30-calendar day deadline applies. 

If there is any change to the information you previously submitted in a BOI report, you must file an updated BOI report within 30 calendar days after the change occurs. 

The BOI report contains information about the reporting company, and personal identifying information about two different categories of individuals: beneficial owners of the reporting company, and applicants for the reporting company.    

“Beneficial owners” include those who own or control at least 25% of the ownership interests of the reporting company, its senior officers (President, CEO, CFO, COO, General Counsel and the like), as well as those with: (i) the authority to appoint or remove senior officers or a majority of directors, (ii) substantial influence over important decisions for the company, or (iii) any other form of substantial control over the company. 

In addition, reporting companies created on or after January 1, 2024, must also file information about their applicants. “Applicants” include individuals who have filed an application to create the reporting company or first register it in the US to do business. Applicants also include the individual primarily responsible for directing or controlling the filing of the application to create the reporting company or first register it in the US to do business.

The reports are filed via the FinCEN BOI E-Filing website (https://boiefiling.fincen.gov).  Certain third-party filing services can assist with the filing as well, such as Cogency Global (see: https://www.cogencyglobal.com/corporate-transparency-act-resources).

Penalties

There are both civil and criminal penalties for reporting violations and unauthorized disclosure or use violations of the CTA by any reporting company, or other entity (generally defined as a “person”). For “reporting violations,” it is unlawful for any person to: (a) willfully provide, or attempt to provide, false or fraudulent beneficial ownership information to FinCEN; or (b) willfully fail to report complete or updated beneficial ownership information to FinCEN. Violators may face fines of up to $500 per day, up to $10,000, imprisonment up to two years, or both. A person may be exempted from these penalties, however, for reporting violations if the person: (i) has reason to believe that they’ve submitted a report containing inaccurate information; and (ii) voluntarily and promptly submits a report containing corrected information, no later than 90 days after the report was submitted. 

For “unauthorized disclosure or use violations,” except as authorized under the CTA, it is unlawful for any person to knowingly disclose beneficial ownership information obtained by the person through: (a) a report submitted to FinCEN; or (b) a disclosure made by FinCEN. Violators may face fines of up to $500 per day, up to $250,000, imprisonment up to five years, or both. However, if the violation is part of another violation of US law or part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, violators may be fined up to $500,000, imprisoned for up to 10 years, or both. 

What To Do Now

If your company is a reporting company formed before January 1, 2024, the company must file a BOI report by the end of 2024. If your company is a reporting company formed on or after January 1, 2024, the company must file a BOI report within 90 days of formation (if formed in 2024) or within 30 days of formation (if formed in 2025 or later). The BOI report for such companies must also include applicant information.

Questions

If you have any questions, please contact Casner & Edwards attorneys Peter Dunn, Michael Zullas, Steven Ayr, or Drew Douglas-Steele.