The Corporate Transparency Act (“CTA”), a new federal filing requirement for many business entities, became effective on January 1, 2024. The CTA creates a new federal database named BOSS into which companies, including companies already existing, will be required to submit a great deal of identifying information as to themselves and their “beneficial owners.” The CTA database will not be available to the general public but will be accessible by federal and most states’ criminal and financial law enforcement agencies. As of January 1, 2024: (a) companies already in existence will have until December 31, 2024, to submit a report to the BOSS data base; (b) companies formed in 2024 will have 90 days after formation within which to file an even more detailed report; and (c) companies formed on or after January 1, 2025, will have 30 days after formation to file that same detailed report.
The reach of the CTA is expansive; subject to a series of limited exceptions, every corporation and limited liability company, as well as certain other business forms, will need to file a report. There are 23 exceptions from the filing obligation. Some are quite narrow (e.g., public utilities and securities broker-dealers) while others, including one for a “large operating company,” are more expansive. Step one will be assessing whether your company is initially subject to the CTA and then looking for an applicable exemption. Be aware that absent an applicable exemption, the CTA has significant criminal and civil penalties for non-compliance. If your company is exempt, you will likely want to maintain documentation of the relevant exemption.
If no exemption from reporting is available, then a company already existing as of December 31, 2023, has until the end of 2024 to file its initial report. In addition to providing information about your company, the report requires information about your company’s “beneficial owners.” The phrase “beneficial owner” does not quite mean what it sounds like it means – it is entirely possible to be a beneficial owner without owning any equity in a company. Our CTA team can lead you through this definition, but it is best to begin the process early.
For each beneficial owner, the reporting company must submit what many will see as intrusive information, including his or her date of birth, residential address and a copy of a valid driver’s license or passport. Further, each beneficial owner must advise the company of any changes in the information provided (e.g., moved to a new residence, a name change resulting from a marriage or divorce), after which the company will need to file an updated report. There is a limited workaround to the beneficial owners reporting that personal information to the company, known as a “FinCEN Identifier.”
For companies formed after January 1, 2024, unless an exemption is available, the new company must file its own report. The report filed by a newly formed company will also include information on the “company applicant” – again, we can lead you through that definition.
If you set up a new company in 2024, absent an exemption from filing, it will have 90 days to make its initial BOSS filing. That is the good news – set up a company on or after January 1, 2025, and you will have only 30 days to make the initial filing.
Most companies should consider appointing a “CTA Compliance Officer” who is entrusted to oversee the information collection and report submission role, which may require board resolutions or amendments to the company’s formation documents.
If your company is required to file a CTA Report there are potentially severe penalties that may be assessed, including fines, civil penalties and even prison, for a failure to do so. For that reason, we encourage you to start early rather than waiting to start your compliance process.
More SKO Insiders on the CTA will be coming. This is a complicated topic, and the law is far from settled; some of the implementing regulations are not final and some of them have not yet been published for comment. Throughout this process, we will continue to keep you posted on what we know and what we think.
Please do not hesitate to reach out to your contact attorney at SKO or a member of the CTA Practice Group to help you in getting ready for these new filing requirements.
