As we had previously advised, a new Federal law named the Corporate Transparency Act (CTA) will go into effect on January 1, 2024. CTA will require certain business entities to file a beneficial ownership report with the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). CTA may apply to your business entity and if so, you will need to prepare to make this filing or face hefty penalties by FinCEN.

Who must report?

CTA covers and applies to any of the following business entities incorporated or organized in any of the 50 United States, unless an exemption exists:

•              Corporations;

•              Limited liability companies;

•              Limited liability partnerships;

•              Limited liability limited partnerships;

•              Business trusts;

•              Limited partnerships;

•              All business entities formed under the laws of a foreign country and registered to do business in any state in the United States.

CTA does not apply to any of the following business entity types:

•              Sole proprietorships;

•              General partnerships;

•              Certain types of trusts.

We note that though certain types of trusts are exempt, business entities (such as corporations or LLCs that own real estate or investment property) owned by trusts may still be covered by CTA.

Exemptions from reporting?

CTA expressly excludes from the definition of reporting company 23 categories of larger, more highly regulated entities, and other entities that may be subject to different ownership reporting requirements. These include but are not limited to:

•              Large Operating Companies with (1) more than 20 full-time employees, (2) an operating presence at a physical office within the United States; and (3) reported income, gross receipts, or sales of $5 million or more on its prior year federal tax return;

•              Inactive entities in existence on or before January 1, 2020 that are not engaged in active business, are not owned by a non-US person, have not experienced a change in ownership, have not sent or received more than $1,000 in the past 12-months, and do not hold any kind of asset inside or outside of the US;

•              Investment Companies and Investment Advisors;

•              Insurance Companies and Insurance Producers;

•              Venture Capital Fund Advisors;

•              Pooled Investment Vehicles;

•              Certain other highly regulated entities.

What information must be reported?

Information regarding Beneficial Owners and Company Applicants

The report must identity the company’s beneficial owners. Beneficial owners include any person who either directly or indirectly exercises substantial control over the company (for example, senior officers, persons having authority over appointment or removal of such officers), or who owns or controls 25% or more of the ownership interests of the company.

For any entities formed after January 1, 2024, the identities of company applicants, including the Attorneys and Paralegal’s that assist in filing the formation document with the Secretary of State must be reported.

Reporting requires that the following information for each individual named above be filed with FinCEN:

•              Full legal name;

•              Date of birth;

•              Complete current residential address of beneficial owners;

•              A copy of an unexpired identification document (Passport or State Driver’s License).

Information regarding Company

The company must disclose the following information about itself on the report:

•              Full legal name of the reporting company including any fictitious business names;

•              Current physical address (corporate agent or P.O. Box addresses are not allowed);

•              State of formation;

•              IRS Taxpayer Identification Number.

When must the initial report be filed?

Entities in existence before January 1, 2024 have until January 1, 2025 to file an initial report. Entities created on or after January 1, 2024 have 30 days after its formation in which to file an initial report.

When must an updated report be filed?

An updated report needs to be filed whenever the company information listed above changes, or whenever there are any changes to the beneficial owners of the company. That means if you change your company address, sell stock to a new shareholder or appoint a new senior officer, an updated report needs to be filed.

What happens if I do not comply?

The CTA provides for civil and criminal penalties for violations, including a fine of up to $10,000, imprisonment for up to two years, or both, for any person who willfully provides or attempts to provide a false report, or fails to report complete or updated beneficial ownership information.

So what now?

There is no action required on your part until January 1, 2024 when FinCEN opens its online reporting portal. However, it is a good time to ensure that your corporate records are up to date, and that you are clear on who your beneficial owners and controlling persons are. It is also a good time to inform the beneficial owners and controlling persons of the need to disclose their personal information, including their residential addresses.

If you would like our assistance with making this filing or updating your corporate records, please contact us and we will reach out to you with further instructions. If you need any further assistance, or have any questions regarding your reporting obligations, please contact Kurtis Urien, Esq. at kurtis@mrclawcorp.com or Luna Hernandez, Esq. at luna@mrclawcorp.com or call 714-972-2333.