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Corporate Transparency Act Notification and Facts

Tuesday, January 9th, 2024

Dear Gentry Locke Clients:

This letter is to notify you of a significant change in federal law that will impact nearly everyone operating a business through a legal entity such as a corporation, limited liability company, limited partnership or other similar entity.

The Corporate Transparency Act (the “CTA”) became effective on January 1, 2024, and all required companies should be prepared to comply with the new reporting requirements. The CTA requires specific private companies that meet the CTA criteria of a “reporting company” (“Reporting Company”) to file informational reports with the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) disclosing its beneficial ownership information as it relates to the company and its owners and principals. A Reporting Company will report its beneficial ownership information through a new federal government online portal called the “Beneficial Ownership Secure System.”  More information is provided on the enclosed CTA Fact Sheet.

Additional information about the reporting requirements, including answers to questions such as “is my company required to report beneficial ownership information to FinCEN,” “who is a beneficial owner,” and “when do I need to report my company’s beneficial ownership information” is available on FinCEN’s beneficial ownership information webpage, https://www.fincen.gov/boi.

While the responsibility for the required disclosures is that of the entity, Gentry Locke will stand ready to assist with the analysis of your entity structure to determine if your entity is considered a Reporting Company, and, if so, determining its beneficial owners. Gentry Locke will not be reporting the required information to the federal system on your behalf.

If you have any questions, please contact one of our attorneys or email us at CTA@gentrylocke.com.

Sincerely,

Gentry Locke Rakes & Moore, LLP

Background

The Corporate Transparency Act (the “CTA”), enacted in 2021, requires certain companies formed in, or registered to do business in, the United States to report its “beneficial ownership information” (“BOI”). The purpose of the CTA is to combat the use of shell companies for illicit activities such as money laundering, terrorist financing, tax fraud and corruption by uncovering illicit actors that use corporate structures to conceal their individual identities.  The CTA became effective on January 1, 2024.

Companies Required to File a BOI Report

The CTA requires a Reporting Company to file a BOI report. A Reporting Company means any entity that is:

  • created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian tribe; or
  • formed under the laws of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian tribe; and
  • does not meet one of the 23 exemptions to reporting under the CTA.

Exemptions to Reporting BOI

Currently, the CTA provides 23 specific reporting exemptions. Most of these exemptions cover entities already subject to regulation by government entities, including public companies; large private companies (detailed below); regulated insurance companies; public accounting firms; registered investment companies and advisors; banks; regulated public utilities; as well as certain tax-exempt entities.

We expect that the most significant exemption will be the “large operating company” exemption, which applies to an entity that:

  • directly (i.e., not on a consolidated or affiliated basis) employs more than 20 employees on a full-time basis in the United States;
  • has filed a federal income tax return in the previous year demonstrating more than $5,000,000 in gross receipts or sales in the aggregate (on a consolidated basis, if applicable); and
  • has an operating presence at a physical office within the United States.

Reporting Information: Beneficial Owners and Company Applicants

Beneficial Owner: Once it is determined whether an entity meets the definition of a Reporting Company, the next step is to identify the Reporting Company’s Beneficial Owner(s). A Beneficial Owner is any individual who, directly or indirectly, meets at least one of the following criteria:

  • exercises “substantial control” over the Reporting Company; or
  • owns or controls at least 25% of the “ownership interest” of the Reporting Company. The identity of these individuals must be reported to Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

The CTA published final rules that further define the terms “substantial control” and “ownership interest” and describes criteria for determining whether an individual owns or controls 25% of the ownership interests of a Reporting Company.

  • Under the final rule, “substantial control” means (1) service as a senior officer, (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or other similar governing body) of a Reporting Company, (3) direction, determination or decision of, or substantial influence over, important matter of a Reporting Company, or (4) any other form of substantial control over the Reporting Company.
  • The final rule defines “ownership interest” as any instrument, contract, arrangement, understanding, or mechanism used to establish ownership, such as any equity, stock, capital, or profit interest..

Beneficial Owners may also include individuals that hold ownership interests in a Reporting Company through a trust or similar arrangement as well as those owning or controlling one or more intermediate entities that separately or collectively own or control ownership interests of a Reporting Company.

Company Applicant: In addition to reporting information regarding its Beneficial Owner(s), a Reporting Company must also file certain information regarding its Company Applicant. A Company Applicant is either the direct filer of the information or the person overseeing the filing of the information. If an advisor is retained to complete the filing on behalf of the Reporting Company, he or she will also be a Company Applicant in addition to the person employed by the Reporting Company who is overseeing this compliance process. This requirement to file information on the Company Applicant(s) only applies to a Reporting Company formed on or after January 1, 2024.

Reporting Timelines, Filing Costs and Penalties

Initial BOI Reporting Timelines: A Reporting Company created or registered to do business prior to January 1, 2024, has until January 1, 2025, to file its initial BOI report with FinCEN through a new federal government online portal called the “Beneficial Ownership Secure System” (“BOSS”). A Reporting Company created or registered to do business on or after January 1, 2024, is required to file its initial BOI report with FinCEN through the BOSS within 30 calendar days of the date on which the company is created or registered. However, on November 29, 2023, FinCEN issued a final rule extending the CTA deadline to file initial BOI reports for only those entities created or registered in 2024 from 30 days to 90 days. A company formed on or after January 1, 2025, remains subject to the 30 day reporting timeframe. There is a 90 day deadline to correct mistakes made in an initial BOI report.  If a company makes a correction within this timeframe, it may avoid penalties.

Change in BOI Reporting Timeline: If there is any change in information previously reported to FinCEN in a BOI report (including but not limited to a Beneficial Owner’s change of residential address), the Reporting Company will have 30 calendar days to file an updated report reflecting the change in information.

Approximate Filing Costs: It is anticipated that it will cost a Reporting Company with simple management and ownership structure (which FinCEN expects to be the majority of Reporting Companies) approximately $85 (per entity) to prepare and submit an initial BOI report.

Penalties: The penalties for noncompliance include both civil and criminal penalties for anyone who willfully fails to report or update BOI or provides false information in a report. Civil penalties include a fine of $500 per day (not to exceed $10,000) and criminal penalties include up to two years of imprisonment.

Filing Information

The Reporting Company must report the following information related to the Reporting Company on the BOSS:

  • full legal name including any trade names or d/b/a names;
  • its principal place of business;
  • its jurisdiction of formation; and
  • a unique taxpayer ID number (TIN and EIN).

The Reporting Company must report the following information related to its Beneficial Owner(s) and, for entities formed or registered after January 1, 2024, its Company Applicant(s) on the BOSS:

  • the full name and date of birth of such individual(s);
  • the current address for such individual(s);
  • a unique identifying number for such individual(s) from an unexpired US passport number, driver’s license number or other specified documents; and
  • an image of the document from which such unique ID number was obtained.

For filing efficiency, any individual or entity may obtain a FinCEN identifier (referred to as a “FinCEN ID”) by providing FinCEN the same information that a Reporting Company is required to report regarding the individual or entity.

For current guidance and updates related to the CTA rules and to assist entities in working through these complex provisions in an organized manner, FinCEN has released a “Small Entity Compliance Guide” available at: https://www.fincen.gov/boi/small-entity-compliance-guide and has also published a list of FAQs available at https://www.fincen.gov/boi-faqs.

If you have any questions, please email us at CTA@gentrylocke.com.

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