The Corporate Transparency Act

Do you own 25% of any entity, or directly or indirectly exercise substantial control over any entity?

Have you or your attorney filed an application to form a corporation, limited liability company, or other similar entity?

Have you bid on a government or federal project?

Congratulations! You are now required to file a Beneficial Ownership Information Report (BOI). You may ask why? The government believes that “while such entities play an essential and legitimate role in the U.S. and global economies, they can also be used to facilitate illicit activity and allow corrupt actors, criminals, and terrorists to remain anonymous.” The Treasury Department is taking a number of actions to fight corruption, among these actions is the implementation of the Corporate Transparency Act (CTA) which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for fiscal year 2020.

The CTA requires the Financial Crimes Enforcement Network (“FinCEN”), a unit of the Treasury Department, to maintain a national registry of “beneficial ownership” information collected from certain “reporting companies.” In theory, the information will not be made public and will only be released to authorized government authorities, pursuant to court order, and to financial institutions that need such information

“Reporting company” includes corporations, limited liability companies, and other similar entities formed by filing registration documents with a secretary of state (or a similar office under state law). It is likely that the term “other similar entity” includes limited partnerships, limited liability partnerships, or statutory trusts. The Treasury Department will address this in its regulations. Certain federal contractors and subcontractors that meet the criteria of a reporting company must disclose their beneficial ownership information in their bids or proposals.

The term “beneficial owner” refers to an individual who: (1) directly or indirectly (through any contract, arrangement, understanding, relationship, or otherwise) exercises substantial control over an entity; or (2) owns or controls not less than 25 percent of the ownership interests of an entity.

An entity deemed a reporting company must submit a report to FinCEN including the full legal name, date of birth, current address, and a unique identifying number from an acceptable identification document or a FinCEN identifier of any beneficial owner. For an individual, “acceptable identification document” means (1) a nonexpired U.S. passport; (2) a nonexpired identification document issued by a state government, a local government, or an Indian Tribe; (3) a nonexpired driver’s license

Any reporting company formed before the effective date of the regulations has two years to submit the beneficial ownership information to FinCEN. Any reporting company formed after the effective date of the regulations must submit to FinCEN, at the time of formation, a report that contains its beneficial ownership information.

Any person that willfully provides or attempts to provide false or fraudulent beneficial ownership information, or willfully fails to submit a complete and updated report to FinCEN, could be subject to a fine of up to $500 for each day that the violation continues (maximum $10,000) and/or imprisonment for up to two years. A safe harbor rule protects individuals from liability if within 90 days they voluntarily follow procedures and submit a report with correct information.

There are twenty-three types of entities that are exempt from these requirements. Likely, none of these exemptions will apply to small businesses. This act will go into effect in late 2022. The Treasury Department has taken a serious attitude toward the implementation of this legislation.

This legislation most likely will not assist in identifying the bad guys but will have significant unintended consequences for the law-abiding public. However, until it is revised or repealed, the prudent course is to make sure you are complying with the legislation. We at Palecek, McIlvaine, Hoffmann & Morse, Co., LPA are willing and available to assist you in meeting the requirements of this new regulation.

Carl E. Patrick, Of Counsel

Business Practice Group

Categories: Uncategorized