The Corporate Transparency Act and How it Impacts You

Any company that meets the definition of a “reporting company” under the CTA must comply with the CTA. The term “reporting company” means a corporation, limited liability company, or other similar entity that is created or registered to do business in the U.S. by the filing of a document with a secretary of state. Because they are not created by a filing with the secretary of state, general partnerships or sole proprietorships are not reporting companies.

Because of the breadth of the CTA and narrowness of its exemptions, you SHOULD assume that your company or business is a reporting company. The primary exemption is any entity that:

• operates in a physical office in the U.S.;

• employs more than 20 employees on a full-time basis in the U.S.; and

• has more than $5,000,000 in gross receipts or sales for the prior year, as evidenced by a federal income tax return;

Other exemptions include those businesses already subject to government oversight through various regulatory structures, such as publicly traded companies, various financial institutions, insurance companies, and non-profit entities.

Each reporting company must provide FINCEN the following information:

• Full legal name of the reporting company;

• Any trade name or “doing business as” (d/b/a) name;

• Current address;

• Jurisdiction of formation or registration; and

• Federal taxpayer ID number.

For each beneficial owner of the reporting company, the reporting company must also provide FinCEN the following information through the submission of a beneficial ownership informant (BOI) report:

• Name;

• Date of birth;

• Current residential or business address; and

• A unique identifying number from an acceptable, nonexpired identification document (such as a state driver's license or a U.S. or foreign passport) or an identifying number issued by FinCEN.

A reporting company, when or after submitting its initial report, can request a unique “FinCEN identifier” from FinCEN, which it can then use in lieu of providing the corresponding information required by the CTA. Similarly, an individual can also obtain a FinCEN identifier that can be used by the reporting company in lieu of providing the required information. Individuals and reporting companies are obligated to update and correct the information provided to FinCEN in the application for the FinCEN identifier.

The term “beneficial owner” means an individual who, directly or indirectly, exercises “substantial control” over the entity OR who owns or controls 25% or more of the ownership interests of the entity.

An individual has “substantial control” over an entity if he or she:

• serves as a senior officer of the reporting company,

• has authority over the appointment or removal of any senior officer or a majority of the board of directors/managers (or similar body), or

• directs, determines, or has substantial influence over important decisions made by the reporting company.

This concept of “substantial control” can reach a wide group of individuals even if they do not have any ownership in the entity and each of these people may need to submit a BOI report.

What constitutes “important decisions” is not well defined but will include decisions such as: the nature and scope of the entity’s business, major transactions involving the entity, major expenditures, compensation for officers, and amendments to substantial governance documents, such as articles of incorporation/organization and bylaws/operating agreements, or similar documents.

FinCEN is in the process of developing a secure database called the “Beneficial Ownership Secure System” (BOSS) to receive, store, and maintain beneficial ownership reports electronically. Beneficial owner information reported to FinCEN will not be public information.

Initially - All business entities should determine whether they are a “reporting company” under the CTA. The complexities and lack of specificity in many of the concepts of the CTA may raise uncertainty and questions for many businesses regarding their status under the CTA.

An entity subject to the CTA will need to gear up for the reporting requirements starting January 1, 2024:

A reporting company created or registered BEFORE January 1, 2024 will have until January 1, 2025 to file its initial beneficial ownership reports with FinCEN.

A reporting company created or registered on or AFTER January 1, 2024 will be required to file the initial BOI reports within 90 days of formation or registration. (We note that after January 1, 2025, companies may have only 30 days to file initial BOI reports.)

On-going - If there is any change with respect to information that has been previously submitted to FinCEN, a reporting company must update that information within 30 calendar days of when the change occurred. Reporting companies need to develop a process to ensure they track and receive timely updates when information changes, including that relating to the beneficial owners whose information has been reported and those who become beneficial owners in the future, and designate a person from the company to handle all reporting.

Penalties - A reporting company or individual that violates the CTA will be subject to civil penalties of not more than $500 per day, capped at $10,000 in the aggregate, or imprisonment of not more than two years, or both.

We recommend that you begin to determine if your business is a reporting company and therefore subject to the CTA. If it is, begin assembling a list of every beneficial owner of the entity, as stated above. You should also begin assembling information regarding the beneficial owners of any entities where you have a 25% ownership interest or over which you exert control. Finally, you should begin obtaining copies of the governing documents of those entities, such as articles, operating or partnership agreements, bylaws, shareholder agreements and similar agreements.

• Woods Fuller can advise you on whether your company or business will be a reporting company under the CTA and who might be considered a beneficial owner.

• Woods Fuller can advise you on amending your company’s or business’ internal governance documents to assist with compliance with CTA.

• Woods Fuller can advise you on preparing the reporting company’s BOI reports.

However, Woods Fuller cannot assist you with these tasks unless you contact us to ask that we do so.

Woods Fuller cannot prepare or file with FinCEN any BOI reports on behalf of any beneficial owners of a reporting company. You will need to designate a person to handle all BOI report filings, both initially and on-going basis.

You can monitor FinCEN.gov for updates in the meantime. While more information is expected to be added to FinCEN’s website before the January 1, 2024 effective date, it is important to make sure that your company is ready to file before the January 1, 2025 deadline.

Yes. You will likely receive many solicitations relating to CTA related services. If you engage anyone to provide those services, please make sure they are a reputable company. The information that is reported on CTA filings can, in the wrong hands, be used to steal your identity. So, please, be sure that you only provide that information to appropriate individuals.