***NEW Regulation: Corporate Transparency Act

On September 30, 2022, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued its final rule outlining the Corporate Transparency Act ("CTA" or the "ACT"). The CTA was created to combat various financial crimes such as money laundering, tax fraud, financing of terrorism, and other illicit activity through shell and front companies. The CTA requires certain business entities ("reporting companies") to report their beneficial ownership information ("BOI") and other information to FinCEN.

💎 Reporting is to prevent people from funneling money through fake and/or empty companies. 

Effective January 1, 2024, all businesses established on or after January 1, 2024, are required to report to FinCEN information about the beneficial owners of the entity, unless the entity is otherwise exempt. All entities created on or after January 1, 2024, are required to file a report within 30 days of creation/registration. Companies created prior to January 1, 2024, have until January 1, 2025, to file their initial report. 

What Companies are Required to Report under the CTA?

Any domestic or foreign business entity created by or are registered with a secretary of state or similar office within the U.S. may have reporting requirements under the CTA. The ACT potentially encompasses corporations, limited liability companies, limited partnerships, limited liability partnerships, business or other statutory trusts, and general partnerships depending on the entity's applicable state law.

✨ 💎 ✨ basically, all business entities that are not exempt.

What Companies are Exempt?

Business entities that are exempt from the CTA's definition of reporting company, generally include (Note: this list is not exhaustive):

• Large Operating Companies that have more than 20 full-time employees in the US; with an operating presence at a physical office within the US; and reported more than $5 million in gross sales or receipts on its previously filed federal tax return. 
• Any Issuer of Securities. 
• Inactive Entities that were in existence on or before January 1, 2020; not engaged in active business; is not wholly or partially owned, directly or indirectly, by a non-US person; has not experienced a change in ownership in the prior 12-month period; has not sent or received any funds in an amount greater than $1,000 in the prior 12-month period; and does not otherwise hold any kind or type of assets. 
• Investment Companies or Investment Advisers registered with the Securities and Exchange Commission under the Investment Company Act or the Advisers Act.
• Venture Capital Fund Advisers.
• Pooled Investment Vehicles that are operated or advised by certain other exempt entities (a bank, credit union, broker or dealer in securities, federally registered investment advisors, or a venture capital fund adviser). 
• Insurance Companies and Insurance Producers.
• Public Accounting Firms.
• Tax-Exempt Entities and Entities Assisting Tax-Exempt Entities.
• Governmental Agencies and Authorities. 

✨💎✨  Seems like the CTA's reporting requirements may principally impact small companies.

What are the Reporting Requirements?

1. The Reporting Company - the report shall include the entity's full name, any "doing business as" aliases, address, jurisdiction of formation or registration, and tax identification number (TIN/EIN).
2. Beneficial Owners - the report shall include the full name, date of birth, address, and photograph identification with identification number shown for each individual falling with the definition of "beneficial owner".
3. Company Applicants - the report  shall include the full name, date of birth, and photograph identification with identification number shown for each individual who assisted in forming the entity. 

Who is a "Beneficial Owner"? 

1. An individual who, directly or indirectly, exercises substantial control over the reporting company, which includes senior officers.
2. Anyone with the ability to make important decisions on behalf of the reporting company.
3. An individual, who directly or indirectly, owns or controls at least 25% of the ownership interests of the reporting company, including of convertible interests irrespective of whether these convertible interests are debt or equity, along with directly held options and warrants.
4. Certain trust arrangements, or those individuals or entities acting as an intermediary, custodian or agent on behalf of another.

✨ Excluded from "beneficial owner" are minor children (as long as the parent or legal guardian's information is reported), individuals acting as nominees, intermediaries, custodians, or agents, employees acting solely as employees and not as senior officers, individuals whose only interest in a reporting company is a future interest through a right of inheritance or creditors of a reporting company (unless the creditor otherwise meets the definition by the level of control they are able to exercise over the company).

Where do I file the Report?

FinCEN is working on the secure filing system which will facilitate the CTA reports. The system will not be ready to accept filings until January 1, 2024. (www.fincen.gov/boi)

Can Hairston Law Help File CTA Reports?

Absolutely! If you are an In-House Counsel Client, just contact your HL attorney. If you are not already a HL client, please contact our office to get your report filed within your deadline.