By Danny Marks and Julie Pace
I. THE CORPORATE TRANSPARENCY ACT (“CTA”) WENT INTO EFFECT ON JANUARY 1, 2024.
The Corporate Transparency Act (“CTA”) went into effect on January 1, 2024, and it requires primarily smaller businesses to submit a report to the Financial Crimes Enforcement Network (“FinCEN”) containing personal information about the reporting company and the company’s “beneficial owners,” among other things. It is important to properly and timely submit to avoid potential civil and criminal liability.
II. WHAT IS THE CTA.
The CTA, in a nutshell, requires small companies to disclose information about the company, the company’s beneficial ownership, and the company’s applicants. The CTA was enacted so that the federal government could obtain certain information about the ownership of smaller companies. It is intended that the CTA will improve transparency in smaller businesses and improve national security by preventing money laundering, stopping other unlawful acts, etc.
III. MANY SMALLER BUSINESSES ARE SUBJECT TO THE CTA.
Every non-exempt business in the United States must file a Beneficial Initial Report (“BOI Report”), unless they are exempt. It is important to note that the CTA’s applicability does not discriminate based on the type of entity. In other words, unless exempt, the CTA applies to corporations, limited liability companies, etc.
There are more than 20 exemptions to the CTA, most of which are reserved for businesses that are subject to significant regulations, such as publicly traded companies, banks, etc.
There is an exception for “large operating companies,” which are companies that (1) have more than 20-full time employees in the United States, (2) operate at a physical office within the United States, and (3) file a tax return in the previous year that reflects more than $5,000,000 in gross receipts or sales.
IV. WHAT MUST BE DISCLOSED.
The reporting company must disclose the name of the business, the names under which it does business, state of formation, its address, and taxpayer identification number.
Information about the company’s beneficial owner(s) must also be disclosed, including their legal name, birthday, address, unique identifying number, such as a number from a passport or driver’s license, and an image of the document that contains the unique identifying number. A beneficial owner includes, but is not limited to, one who owns or controls 25% of the company.
Information about the company’s applicant(s) also must be disclosed for reporting companies that are formed on or after January 1, 2024. A company applicant includes the person who forms the entity with the applicable state agency and the individual who is responsible for directing the formation of the entity.
Certain agencies will have access to the reports. However, neither the public nor the Arizona Corporation Commission will have access to the reports.
V. THE DEADLINES.
The deadline for submitting the Beneficial Initial Report (“BOI Report”) depends on the date on which the company is formed:
- A company that is formed before January 1, 2024, must file its initial BOI Report by January 1, 2025.
- A company that is formed between January 1, 2024, and January 1, 2025, or later, must file its BOI Report within 90 days after the date it is formed.
- A company that is formed on or after January 1, 2025, must submit its BOI within 30 days of formation.
VI. THERE ARE CONSEQUENCES IF A BUSINESS FAILS TO TAKE ACTION.
The CTA provides for civil and criminal penalties against anyone who willfully (1) fails to report or update a reporting company’s BOI and (2) providing false or fraudulent BOI. The CTA provides for civil penalties that include a daily fine of $500 for a continuing violation. Willful violations of the CTA can result in criminal fines of up to $10,000 and imprisonment for up to two years.
VIII. HOW WE CAN HELP.
PSGM Law can work with businesses to determine whether they are subject to the reporting requirements and with the submission as well as assisting with annual reports, annual meetings, business planning, and other corporate governance matters.