| Perhaps you have heard that effective January 1, 2024 all United States organizations have a new reporting requirement created by the federal Corporate Transparency Act (“CTA”). The purpose of the CTA is to prevent owners from creating shell corporations to hide assets and launder money. It was enacted as part of the legislative response to stymie covert financing of terrorist operations. The CTA requires that “beneficial owners” of a corporate entity must be identified and that information is kept in a federal data base. All reporting entities must file a Beneficial Ownership Information (“BOI”) report with the United States Department of Treasury.
No need to panic. Entities created prior to January 1, 2024 do not have to file their BOI until January 1, 2025. Entities created after January 1, 2024 have 90 days after their date of organization to file their BOI. A guide to filing disclosure documents can be found on the United States Treasury web site at: https://www.fincen.gov/boi. All business entities including corporations and limited liability companies must report to the U.S. Treasury all owners of equity in excess of 25% of the entity. However, there is a long list of exceptions to reporting entities. The exception list can be found here: https://www.fincen.gov/boi-faqs Large operating entities (those with more than 20 full time employees with revenues in excess of $5MM) do not have to file under the CTA. Also exempt are non-profits and entities that are regulated by other government agencies such as the Securities Exchange Commission. Which means that your average, small, closely-held corporation or limited liability company must file a BOI under the CTA. A reporting entity is required to disclose information about: 1. Itself, with respect to basic contact information; 2. Its organizers (not required for entities formed prior to January 1, 2024); 3. Persons or entities that own more than 25% of the equity of the reporting entity; and 4. Persons or entities that exercise substantial control over the reporting entity even if they don’t own 25% of the equity of the reporting entity.
This article from the International Association of Commercial Administrators provides a good overview of the CTA: https://www.iaca.org/about-iaca/corporate-transparency-act/ The Massachusetts Secretary of State has a good summary of the CTA and how it affects Massachusetts entities: https://www.sec.state.ma.us/divisions/corporations/general-information/corporations-corporate-transparency.htm The Treasury Department acknowledges that this is a new process and a new reporting requirement for companies and individuals. Therefore it appears to be still working out its policies and procedures for non-compliance with the CTA. At this time, there is no clear penalty for companies that fail to report. However, under the CTA, individuals who willfully fail to submit required disclosures are subject to a penalty of up to $500 per day for each day of non-compliance with the CTA.
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