A Deeper Dive Into the CTA and BIOR
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A Deeper Dive Into the CTA and BIOR

By December 26, 2024 No Comments

The Corporate Transparency Act  – August 2, 2024
UPDATED – December 26, 2024

Owners and officers of corporations, limited liability companies, and other similar entities formed or registered to do business in the United States need to make sure such entities take all steps necessary to ensure that the underlying entity has met its statutory obligations under the Federal Corporate Transparency Act (CTA). The CTA became effective on January 1, 2024, and it established a beneficial ownership reporting requirement (BIOR) for applicable entities.

The initial BIOR (and subsequent amendments) must be filedwith the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the US Department of Treasury. The CTA is intended to increase the information available to law enforcement to prevent the use of U.S. entities to enable money laundering, terrorist financing, and other illicit activities. 

Key Takeaways: 

  • The Corporate Transparency Act (CTA) will affect a wide range of legal entities, and will likely include the Company, unless there is an applicable exemption which I am not aware of at this time. The good part is that as a single member LLC where you are the sole owner/controlling person and officer , the filing is relatively easy.  
  • The CTA, which became effective January 1, 2024, mandates that many, but not all, legal entities incorporated, organized, or authorized to do business in any state must disclose certain information relating to its owners, officers, and controlling persons to the US Department of Treasury’s Financial Crime Enforcement Network (FinCEN).  
  • The CTA is intended to increase the information available to law enforcement to prevent the use of U.S. entities to enable money laundering, terrorist financing, and other illicit activities. 
  • There is NO cost for the online filing of the BOIR.
  • Entities that exist or are registered to do business prior to January 1, 2024, must file their initial BIOR prior to January 1, 2025 (See updated filing deadlines issued by FinCen following the Fifth Circuit’s ruling in Texas Top Cop Shop, Inc.  where the Fifth Circuit granted the government’s emergency motion for a stay pending appeal.)
  • Entities which fail to meet reporting requirements and individuals who knowingly provide false or fraudulent information in connection with beneficial ownership reports may face criminal and financial penalties. 
  • Finally, be aware of fraudulent solicitations related to reporting beneficial ownership information. Reporting the beneficial ownership information is a free online process. FinCEN does not accept paper filings.

REMINDER #1 – As stated above, while compliance with the CTA should be relatively easy to complete for an individual, such as yourself, who is the sole owner, officer and/or controlling person in a single member LLC. However, the CTA also contains multiple nuances, exemptions, and specifications. Accordingly, a careful review of the CTA and its related regulations is strongly advised.

REMINDER #2 – Stall Legal will be happy to assist you with your filing(s) or if you have questions or concerns. Furthermore, while some persons may only be required to make the initial BOIR filing, many will need to provide subsequent updates to their BOIR as the result of changes in corporate ownership and leadership – some of which may require updating within as little as 30 days following the triggering event.

(Note – The descriptions and explanations set forth in this overview are expressly subject to the information, including updates posted on the FinCEN website at www.fincen.gov )

Who Is Required to File a Report with FinCEN?  

The CTA provides that all “reporting companies” must file information on its respective “beneficial owners” and “company applicants.” 

Who Are “Reporting Companies”  

“Reporting companies” include any domestic or foreign privately held entity. A “domestic, privately held entity” is any corporation, LLC, limited partnership, or similar entity created by the filing of a document with any state, territory, or Indian tribe. A “foreign privately held entity” is any non-US entity that registers to do business with any state, territory, or Indian tribe. Trusts (other than trusts created by a filing, such as a statutory or business trust) are themselves not reporting companies.  

Each reporting company is required to provide the reporting company’s legal name, trade name or “doing business” name, current address, the company’s jurisdiction of formation (or for foreign reporting companies, the state, territory, or tribal jurisdiction where it first registers) and the company’s EIN. Foreign reporting companies must provide a foreign tax identification number if they do not have an EIN.

Beneficial Ownership Information (BOI) and Company Applicants

Reporting companies must identify each of their “beneficial owners.” Under the CTA, the term “ownership interests” is broadly defined.  A beneficial owner is any individual who directly or indirectly exercises “substantial control” over the reporting company OR who “owns” or “controls at least 25% of the “ownership interests” in the reporting company. The regulations provide guidance on what constitutes “substantial control” and “owns or controls.”

For reporting companies formed on or after January 1, 2025, up to two “company applicants” must also be identified. The two company applicants include (1) the individual who directly files the document to create or register the reporting company, and (2) the individual who is primarily responsible for directing or controlling such filing (if multiple parties participate in the filing).

Each beneficial owner and company applicant must report their individual full legal name, date of birth, current residential address (or business address for a company applicant in the business of forming entities), and an identifying number and “image” from a document, such as a US passport, US driver’s license, US ID card, or if no US issued documents are available, a foreign passport.

Generally, changes in a reporting company’s information, beneficial owners, or exempt status, regarding a reporting company or its beneficial owners must be reported within 30 days.

Exemptions  

The CTA identifies 23 types of entities that are exempt from the definition of a “reporting company.” Many of the exemptions focus on highly regulated business, such as banks, publicly traded companies, insurance companies, tax exempt entities, and subsidiaries of exempt entities.

However, the most significant exemption is for “large operating companies” which meet all three of the following criteria – (i) has more than twenty (20) full time employees in the US; (ii) has filed a federal US tax return for the prior year showing more than $5 million in gross domestic receipts or sales; and (iii) maintains a physical office presence in the United States.  

For entities which initially qualify for the “large operating company” exemption but subsequently no longer meet the applicable criteria will be required to file a beneficial owner’s report. If an entity is initially determined to be a “reporting company” but later qualifies under the “large operating company”, the entity is required to file an updated report acknowledging the change in status.  

Penalties

The CTA provides for both civil and criminal penalties for willfully (i) failing to report or update a reporting company’s BOI, and (ii) providing false or fraudulent BOI. Civil penalties include a daily $500 fine for continuing violations, up to a maximum of $10,000, and criminal penalties include up to two years’ imprisonment. The CTA does not provide for non-willful or negligence penalties.

If you have questions regarding CTA or other corporate governance matters, please call your lawyer at Stall Legal.