Like Death and Taxes, This is Just Something You Have To Do
On January 1, 2024, another law quietly went into effect. The Corporate Transparency Act (“CTA”) was passed in conjunction with the U.S Anti-Money Laundering Act of 2020. The intent was to keep an eye on foreign money in privately held entities in the United States.
Dissention over yet another reporting and compliance requirement for small businesses is loud and clear:
“I have heard some theories about why the feds are asking for this info, but it seems like government bureaucracy at its finest.”
“They should start by auditing every politician.”
“Yeah, the Russian Oligarchs and CCP are going to comply scrupulously.”
Even with good intentions comes unintended consequences, this time for the small business owner. For most of us, CTA is simply another reporting requirement to the Federal government. And if you fail to comply, penalties could result in fines or maybe even prison!
What is the requirement?
Notably, companies with more than 20 employees, publicly traded companies, insurance companies, banks, etc. are exempt from the requirement to file a BOI Report.* Yes, U.S. government entities are exempt from the beneficial ownership information (BOI) reporting requirements of the Corporate Transparency Act (CTA).
The CTA requires all other entities formed or registered to do business in the U.S. to:
(1) Annually** submit a Beneficial Ownership Information Report (“BOI Report”) to the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCen”)
(2) disclose information about who created the entity or registered it to do business in the U.S,
and
(3) report any changes to previous BOI Report(s).
“Beneficial Owner” Defined
An important piece of the BOI Report and FinCen to add to your vocabulary, is “a beneficial owner.” This is defined as someone who exercises “substantial control” over an entity. FinCen defines “substantial control” as: (i) serving as a senior officer; (ii) someone who has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body), or (iii) one who directs, determines or has substantial influence over important decisions made by the Reporting Company or (iv) has any other form of substantial control over such Reporting Company.
BOI E-FILNG (fincen.gov)
If you do not have any foreign money or interests in your entity, the form is pretty simple to fill out. It is broken into 3 parts (i) information regarding the Reporting Company; (ii) information on the individual who is filing the document, which requires providing that person’s driver’s license; and (iii) if there is more than one person involved in the filing, identify the individual who is primarily responsible for directing or controlling the filing.
What is the deadline to file the BOI Report?
- January 1, 2025, if such Reporting Company was created before January 1, 2024;
- Ninety (90) days if created this year;
- Thirty (30) daysif created on or after January 1, 2025.
It is the second bullet point that sneaks up on people forming entities this year- the clock is ticking!
I know this was a dry topic and not as interesting as the usual construction topic, but I felt it important to pause this month and provide this necessary information on the Corporate Transparency Act to all small business owners.[1]
The good news is that BOI Reports submitted to FinCen will NOT be made available to the public. (Unless of course a hacker gets into to FinCen.
If you want to make this really simple, a law firm or a company like Capital Services can make this yearly filing for you just like a CPA files your franchise tax forms with the state.
[1] A huge thanks to Ammar Hussain, an associate in our Dallas office, for providing the non-corporate lawyers a detailed memorandum on the BOI Report and FinCen topic. If you need any guidance, he is happy to assist.
Matthew L. Motes is a partner in the Fort Worth office of Shackelford, McKinley & Norton, LLP. He can be reached at 682-339-9870 or [email protected]. The firm also has offices in Dallas, Austin, Houston and Nashville with a strong foundation in all areas of construction law and construction/design defect litigation.
AUGUST 2024 UPDATE:
As a follow-up to the original publication, regarding the Beneficial Ownership Information (BOI) reporting requirements of the Corporate Transparency Act (CTA) two clarifications should be made:
*The exemption for filing the BOI Reports is now: Companies with more than 20 employees plus $5m in sales.
** And the reporting requirement is now amended: You only need to file one time. There is no annual filing requirement, unless you change ownership; then you have to update.
