CLG Corporate Tansparency Memo | Dec 2024

 The Corporate Transparency Act (“CTA”). The CTA requires companies to file confidential reports with the Financial Crimes Enforcement Network (“FinCEN”).

This brief memorandum is to advise you of the Corporate Transparency Act (“CTA”). The CTA requires companies to file confidential reports with the Financial Crimes Enforcement Network (“FinCEN”) with respect to individuals who have significant ownership or control over certain entities. The CTA aims to combat financial crime through enhanced transparency regarding the beneficial ownership of legal entities in the United States. While it seeks to deter money laundering, fraud, and other illegal activities, it will affect both domestic companies and foreign companies operating in the U.S, along with their owners. Below are some salient points of the CTA; if you have any questions or require further assistance to determine if you, or your company, are subject to the CTA, please contact Mark Crone.

Companies that are either incorporated or registered to do business in the United States, including both domestic companies and foreign companies (entities formed under the laws of a foreign country and registered to do business in the U.S), must file certain beneficial ownership information (“BOI”) on the FinCEN BOI database, unless an exemption applies. Due to an injunction issued on December 3, 2024 (see below for more details), filing with FinCEN is currently voluntary.

The CTA exempts 23 specific categories of companies from reporting, including (a) issuers required to report under Sections 12 and 15(d) of the Securities Exchange Act of 1934; (b) securities brokers and dealers; (c) investment companies and advisers; (d) pooled investment vehicles; and (e) large operating companies that (i) employ over 20 full-time employees in the U.S., (ii) have a physical office in the U.S., and (iii) report over $5,000,000 in U.S.-sourced gross receipts to the IRS. Subsidiaries of certain exempt companies are also excluded from this requirement. Additionally, subsidiaries of certain exempt companies are also excluded from this filing requirement.

If you, or your company, are not exempt from the CTA requirements, the BOI filing deadlines are as follows:

• If your company was created or registered prior to January 1, 2024, the deadline to report has been extended to January 13, 2025;
• If your company is created or registered in 2024, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier. Please see below for certain applicable extensions.
• If your company is created or registered on or after January 1, 2025, you must file BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
• Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 calendar days.

The basic requirements for BOI reporting under the CTA are as follows:

The CTA mandates that a reporting company must provide certain personal information for each beneficial owner and each applicant, including the person’s name, address and date of birth, unique identifying number from an acceptable identification document. Additionally, the reporting company must provide specific information, such as its legal name, any trade name, principal business address, jurisdiction of formation, and its employer identification number (EIN) or taxpayer identification number (TIN).

(a) Beneficial Owner: The CTA defines the term “Beneficial Owner” as “an entity or an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25% of the ownership interests of the entity.”

(b) Applicant: The CTA defines the term “Applicant ” as “any individual who (A) files an application to form a corporation, limited liability company, or other similar or (B) registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office.” Notably, only reporting companies formed or registered after January 1, 2024, must report their company applicant information to FinCEN.

Failure to comply with the CTA may result in stiff penalties, including criminal liability. The civil penalties under CTA for violating the BOI reporting requirements are no more than $500 per day. However, due to inflation, this penalty amount now has been adjusted to a maximum of $591 per day.

The requirements to report under the CTA were enjoined since December 3, 2024, when a federal court in Texas issued a preliminary injunction prohibiting its enforcement. On Monday, December 23, 2024, the 5th U.S. Circuit Court of Appeals lifted the injunction. In response to this court action, FinCEN extended the deadlines for reporting as follows:

• For companies created or registered prior to January 1, 2024, from January 1, 2025 until January 13, 2025.
• Reporting companies created or registered on or after September 4, 2024, whose 90 days filing deadline fell between December 3, 2024 and December 23, 2024, also have until January 13, 2025.
• Reporting companies created or registered between December 3, 2024 and December 23, 2024, have an additional 21 days from their original filing deadline.

On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit vacated the December 23, 2024 order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the initial injunction issued on December 3, 2024 is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.