Corporate Transparency Act

FEDERAL CORPORATE TRANSPARENT ACT

The Federal Corporate Transparency Act of 2024 (“CTA”) expands anti-money laundering laws and creates new reporting requirements for certain companies doing business in the United States. Beginning in 2024, many small businesses are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity.

CTA provides reporting requirements for new beneficial ownership information (“BOI”), effective January 1, 2024. CTA applies to domestic and foreign companies created or registered to do business in the US through the filing of a document with a Secretary of State (or similar office). While certain types of businesses are exempt from filing (e.g., tax-exempt entities, banks and credit unions, large operating companies or inactive entities), the new rules are targeted at small businesses.

Who Must File? Both domestic and foreign reporting companies are required to file reports with FinCEN. A company is considered a reporting company if a document was filed with a secretary of state (SOS) or a similar office to create or register the entity. Corporations (including S corporations), LLCs, and other entities formed through the SOS are subject to the reporting requirements. But, because sole proprietorships, trusts, and general partnerships do not require the filing of a formal document with the SOS, they generally are not considered a reporting company and will not have to file with FinCEN. Foreign companies are required to file with FinCEN if they are registered with a SOS or similar office under state law.

Some companies are exempt from reporting, but many of the exempted companies are already required to report ownership information to a governmental authority. For example, there is an exemption for “large operating companies”. A large operating company is any entity with (a) more than 20 full-time US employees, (b) an operating presence at a physical office within the US, and (c) more than $5 million of US-sourced gross receipts reported on its prior year federal income tax return. If you meet all of these qualifications, you are not required to file with FinCEN.

What Information Must be Provided? Beneficial ownership information (BOI) must be described for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants. BOI includes an individual’s full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a non-expired US passport, state driver’s license, or other government-issued ID card. If the individual does not have any of those documents, then a non-expired foreign passport can be used. An image of the document showing the unique ID number must also be included with your FinCEN filing.

Beneficial Owners. Two groups of individuals are considered beneficial owners of a reporting company: (1) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; or (2) any individual who exercises “substantial control” over the reporting company. Individuals with substantial control are those with substantial influence over important decisions about a reporting company’s business, finances, and structure. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be considered a beneficial owner for reporting purposes.

Company Applicants. The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney or a corporate service provider). Company applicants must provide the same information that is required of beneficial owners, but only if the reporting company is formed or registered after 2023. Because of the difficulty in tracking down information about company applicants for reporting companies that have been in existence for a number of years, reporting companies formed or registered before 2024 do not have to supply BOI for their company applicants.

FinCEN Identifiers. Individuals and reporting companies can request a FinCEN Identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique number assigned by FinCEN which is obtained by submitting the same information as is required of a beneficial owner or reporting company. A FinCEN ID may be useful to individuals that prefer to send their personal information directly to FinCEN rather through a reporting company, or to individuals that may be required to supply information as a beneficial owner or company applicant of several reporting companies.

Important Filing Dates. For existing reporting companies created or registered before 2024, the initial report is due by January 1, 2025. For reporting companies created or registered in 2024, the initial report is due 90 days after the entity’s creation or registration. For reporting companies created or registered after 2024, the initial report is due 30 days after the entity’s creation or registration. If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change. Thus, it is imperative that reporting companies implement a system to identify reportable changes and file an updated report with FinCEN in a timely manner. The penalties for willfully failing to file both initial and updated reports are steep: $500 per day for late filings, and up to $10,000 and imprisonment for up to two years.

How to File. BOI reports must be filed electronically. FinCEN’s e-filing portal, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI report. Some third-party service providers may also offer the ability to file the BOI report through their software. The person who submits the BOI report will need to provide their name and email address to FinCEN. There is no fee for filing the report. If you need help in fulfilling the reporting requirements, there are corporate service providers who perform such functions. FinCEN also has a Small Entity Compliance Guide and frequently asked questions to help guide businesses through the reporting requirements.

NEW YORK LLC TRANSPARENCY ACT

On March 1, 2024, Governor Hochul signed into law New York’s own version of CTA, known as the New York LLC Transparency CTA (“LLCTA”). Entities formed on or after January 1, 2026 will have to make their LLCTA filing within 30 days of their creation, while existing entities as of that date will have until January 1, 2027 to make their filing.

While the LLCTA generally follows the Federal law (CTA), there are important differences: The LLCTA only applies to limited liability companies and not other forms of business entities (e.g., corporations). CTA requires a change in the reported information to be filed within 30 days. There is no such requirement in the LLCTA. Instead, reporting entities must make an annual filing to either confirm or update the information reported in the initial filing. The same 23 exemptions from filing contained in CTA also apply to the LLCTA. However, under LLCTA, these exemptions are not self-effectuating: an LLC must file an attestation of exemption describing the exemption on which it relies and the basis for that exemption. There is no need to upload copies of identification documents under the LLCTA. The failure of an LLC to make a filing may result in the suspension of its authority to do business in New York being suspended. However, authority is restored retroactively for subsequent compliance.

Contact Us

McCarthy Fingar’s Corporate & General Business lawyers are dedicated to our clients’ success. If you think you may require our assistance or have any questions, please contact Michael S. Kutzin by email (mkutzin@mccarthyfingar.com) or by phone (914-385-1021) or Howell Bramson by email (hbramson@mccarthyfingar.com) or by phone (914-385-1017).