*This is not legal advice. This is general information to educate about the upcoming CTA requirements.
Introduction
In 2021, Congress enacted the Corporate Transparency Act (CTA), ostensibly to help deter financial misconduct. This law passed over the objections of many key organizations, including those of the National Small Business Association. Through this Act, there is a new federal requirement that businesses must report the beneficial
ownership interests (BOI) of said business.
The new reporting requirement went into effect on January 1, 2024, and a compliance deadline of January 1, 2025, is quickly approaching for those businesses formed prior to January 1, 2024. FTCLDF believes this applies to our members who are operating an LLC, corporation, S-Corp or any other entity that was registered with the secretary of state or similar office. There are two lawsuits pending that could change this requirement, but for now, businesses are required to comply by January 1, 2025. This requirement is primarily for small organizations and permits government monitoring not previously required. Most larger organizations are exempt because they “are already regulated by other federal statutes.”
What is beneficial ownership?
In the law, beneficial ownership is defined as anyone who directly or indirectly owns or controls a company. The rationale provided for this registration is to deter anyone who owns or controls a business from using said business as a shell company or as a means to hide any illegally obtained money. The problem is that it requires legitimate businesses to make new reporting requirements tracked on a federal database. If a person exercises substantial control over the business or owns or controls at least 25% of the business’s ownership interest, they are considered a beneficial owner.
What is substantial control?
Businesses are required to report all individuals who exercise substantial control. If a person meets any of the follow criteria, they are exercising substantial control:
1) Are they a senior officer?
2) Do they have authority to appoint or remove certain officers?
3) Are they an important decision maker?
4) The catchall – do they have any other form of substantial control?
For our members’ purposes, most will have substantial control by being the important decision maker for your food production operation.
What businesses are required to report?
Businesses required to report are called reporting companies. Currently, domestic reporting companies are defined as corporations, limited liability companies and any other entities that were created by filing the necessary documents with the secretary of state.
There are 23 exemptions to the new law, but these involve entities already reporting to the Securities and Exchange Commission, governmental entities, banks, and other highly regulated financial institutions.
Who am I reporting to and who uses this information?
The mandatory reporting is submitted to the Financial Crimes Enforcement Network (FinCEN), and FinCEN is responsible for maintaining this information. The information reported will supposedly be used to monitor questionable transactions or companies that could be trying to launder money, provide terroristic financing or commit other financial crimes. Banks will have access to the information to assist in opening business bank accounts.
This information is not public information and cannot be made public under the Freedom of Information Act (FOIA).
Does it apply to me?
If you have an active LLC, corporation, S-Corp or similar entity that has been registered with the secretary of state or a similar entity, the law requires that you file the BOI registration. Things such as size of operation, income, number of employees, using an LLC solely to protect a single piece of property, are not relevant to this requirement. This applies to any entity that has filed registration paperwork with the secretary of state or similar entity.
What do I do?
Visit FinCEN’s website to file. There are instructions and FAQs available. Be prepared to submit every beneficial owner’s name, residential address, current passport or driver’s license number, image of passport or driver’s license and EIN.
Our understanding is that when you submit your registration you have the option of doing a web-based version or an editable PDF. If you do the web-based version you will only be able to see when you last filed, but you will be unable to see what information you submitted. If you do the PDF version you will be able to maintain a copy for your records and more easily track the information you provided. You’ll also have a version to refer to if you have information changes you must make.
When do I have to comply?
For all reporting companies created before January 1, 2024, you must complete this registration by January 1, 2025. For any reporting companies created after January 1, 2024, and before January 1, 2025, you must file within 90 days of notice that the business has been filed with the secretary of state. For businesses created after January 1, 2025, you must complete the registration within 30 days. For entities formed after January 1, 2024, your clock to file starts running as soon as the secretary of state stamps those documents.
How often do I need to do this and how much does it cost?
This is a one-time, zero cost required filing. There is no annual registration requirement. However, you are required to report any changes related to any information of the beneficial owners. If there is a name change, an address change, and additional beneficial owner, the removal of a beneficial owner, etc., they must be reported within
30 days of the change, not 30 days from your knowledge of the change.
What if I don’t comply?
The law states that if you willfully fail to report the beneficial ownership information or provide false or fraudulent information related to the beneficial owners, it can result in civil or criminal penalties. Failure to comply can lead to civil penalties of $591 per day or criminal penalties of imprisonment and a fine up to $10,000.
Current Litigation and Future Possibilities
There have been law suits filed challenging the constitutionality of this reporting requirement. As of now, the only case where the trial court has ruled this requirement as unconstitutional is National Small Business Association v. U.S. Department of the Treasury. This Alabama case is under appeal and currently awaiting a ruling from the 11th Circuit Court of Appeals. As of now, the members of this particular organization, who were members at the time of the original filing of the suit, are exempt from reporting the beneficial ownership interest information. The 11th Circuit’s ruling could further change the landscape of this issue.
There is no information regarding whether this deadline will be extended or if this requirement will cease with the administration change. The incoming administration was in favor of these rules when they were initially introduced.
Warning
The FinCEN website has been inundated. Apparently there have been problems with filing and the government has made the questionable statement that there are no breaks because you tried and failed, were not aware of the requirement or innocently withheld information.
If we are made aware of any changes to this requirement FTCLDF will notify our readership.
Helpful Links
BOI Brochure
BOI Small Entity Compliance Guide
BOI Small Business Resources
Corporate Transparency Act
*This is not legal advice. This is general information to educate about the upcoming CTA requirements.