Corporate Transparency Act: Preparing to report

On January 1, 2024, the reporting requirements of the Corporate Transparency Act (CTA) went into effect. Many companies formed or operating in the U.S. are now required to submit a beneficial ownership information (BOI) report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) about the individual(s) who own and control the company. Existing companies should begin evaluating whether they qualify for an exemption from the reporting requirements, and if not, begin preparing reporting information and constructing policies to ensure continued compliance with the CTA.

Overview of the CTA

Who is required to report BOI?

A “Reporting Company” includes companies formed or registered to do business in the U.S. The CTA includes 23 exemptions from the reporting requirements, most notably for public companies, tax-exempt entities, and “Large Operating Companies” (companies that, among other qualifications, employ more than 20 full-time employees in the U.S., operate at a physical location in the U.S., and have gross sales in the U.S. greater than $5 million).

What information must be reported?

Individuals identified as “Beneficial Owners” and select individuals involved in filing the formation or registration documents of the Reporting Company are required to submit:

1. full legal name;
2. date of birth;
3. current address; and
4. a unique identifying number along with a copy of the identification document.

If any of the information reported to FinCEN changes, in most circumstances, an update will need to be filed within 30 days of that change to remain in compliance.

When are the initial report deadlines under the CTA?

Date of Formation/Registration in U.S.	Report Deadline
Before January 1, 2024	January 1, 2025
On or after January 1, 2024, and before January 1, 2025	90 calendar days after receiving notice that the company’s formation or registration is effective
On or after January 1, 2025	30 calendar days after receiving notice that the company’s formation or registration is effective

Why should companies prioritize CTA compliance?

Willful failure to comply with the CTA could result in civil penalties of up to $500 per day and/or criminal penalties of up to two years imprisonment and a fine of up to $10,000.  It is critical that companies become familiar with the requirements of the CTA and prioritize regulatory compliance to avoid these significant penalties.

For a more detailed explanation of the CTA, please click here.

National Small Business United v. Yellen

You may have heard that the Northern District of Alabama recently ruled that the “CTA is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.” While this decision may foreshadow the fate of the CTA, the order only applies to the specific plaintiffs in that case. FinCEN has announced that it will continue to enforce the CTA against all other Reporting Companies, so we advise clients to prepare to comply with the reporting requirements for the foreseeable future. We will continue to monitor the various challenges to the constitutionality of the CTA and update our clients accordingly.

How can McDonald Hopkins help you with the CTA?

Our team is available and ready to assist companies in navigating these complex regulatory requirements.  With this article, we are alerting you to contact us if assistance in reporting is necessary, as this process will not take place automatically (for entities formed prior to January 1, 2024).

We have constructed various processes to streamline the reporting process for clients and alleviate some of the administrative burden. Please note that the CTA is an unprecedented federal registry, so like the rest of the country, we are learning and adjusting our approach as new guidance becomes available. Given the additional time and resources it will take to file with CTA, clients should initially expect the cost to form new entities to increase. The cost to file for existing companies (companies formed prior to January 1, 2024) will largely depend on the complexities involved with each filling. All services provided relating to the CTA will be billed in accordance with our hourly rates. In addition to filing the initial report, a few of the areas of the CTA we can provide counseling include:

• Identifying if a company is a covered entity;
• Analyzing if an exemption to the reporting requirements applies;
• Analyzing who the Beneficial Owners of a company are;
• Analyzing who has substantial control over a company;
• Analyzing who the appropriate Company Applicants are;
• Filing updates with FinCEN;
• Updating corporate records to incorporate CTA concepts;
• Applying for FinCEN identifiers; and
• Drafting policies to ensure continued compliance with the CTA.

If you are interested in retaining our services regarding the CTA, please contact your attorney at McDonald Hopkins. They will be able to answer any preliminary questions and connect you with a member of our team regarding the next steps.

Please do not hesitate to contact us at any time if you have any questions or concerns.