What is the Corporate Transparency Act?

The Corporate Transparency Act was enacted into federal law in 2021 and is effective for certain companies beginning on January 1, 2024.

The intention of the Corporate Transparency Act, or CTA, is to deter and address money laundering, terrorist financing, corruption, tax fraud, and various forms of unlawful conduct. Congress is of the belief that "fraudsters" frequently use corporate structures such as shell and front companies to hide their identifies and move money through the financial system.

The CTA will require certain entities in the United States to file a Beneficial Ownership Information (BOI) Report with the federal government, specifically the Financial Crimes Enforcement Network (FinCEN).

What is in the Beneficial Ownership Information (BOI) Report?

BOI reports will include identifiable information about the reporting company, the reporting company's beneficial owners, and company applicants.

Information about the reporting company includes:

• Full legal name
• Any alternative, trade, or doing-business-as names
• Federal tax identification number
• Jurisdiction of formation
• Current address

Information about individual beneficial owners and company applicants includes:

• Full legal name
• Date of birth
• Current address
• Copy of a government-issued photo ID (such as a state-issued driver's license or passport)

Who is subject to these reporting requirements?

Reports must be filed by domestic reporting companies and foreign reporting companies.

Domestic reporting companies are defined as  a corporation, limited liability company, or any entity formed by filing a document with a secretary of state or similar office.

Foreign reporting companies are defined as any entity formed under the law of a foreign company and doing business in the United States by filing a document with a secretary of state.

What is a "reporting" company?

A "reporting" company refers to a company that does not fall under certain exemptions including:

• SEC reporting companies
• Regulated financial services companies, including banks, credit unions, depository institution holding companies, money transmitting businesses, brokers or dealers in securities, securities exchange or clearing agencies, registered investment companies and advisers, and venture capital fund advisers
• Insurance companies
• PCAOB-registered accounting firms
• Tax-exempt entities
• Inactive entities that existed before January 1, 2020, that are not engaged in active business, are not owned by a foreign person, have not had a change of ownership in the last 12 months, have not sent or received funds greater than $1,000 in the last 12 months, and do not hold any assets
• Subsidiaries of certain exempt entities.
• Entities that employ more than 20 full-time employees in the U.S., have an operating presence at a physical office in the U.S., and demonstrate more than $5 million in gross receipts or sales on their federal income tax return (this excludes receipt/sales from sources outside of the U.S.). If an entity falls below these thresholds in the future, then a report must be filed within 30 days.

My Company is a "reporting" company or will be a "reporting" company when it is created. What do I do now?

1. Identify who the beneficial owners of your company are. A beneficial owner is generally anyone who owns 25% or more of a company's equity or voting rights or has substantial control over the company. This could include shareholders, directors, and officers for corporations, and members or managers for limited liability companies.
2. Create a Beneficial Ownership Register that includes the identifiable information noted above. Keep this register up to date and accurate. Inaccurate or incomplete information could result in fines or other penalties.
3. Consider creating a compliance program for adhering to the Corporate Transparency Act . This program ought to encompass guidelines and processes for recognizing and confirming beneficial owners, managing the beneficial ownership register, submitting beneficial ownership information to FinCEN, and safeguarding the personal information of the beneficial owners obtained by the company.

What are the filing requirements?

If your reporting company was created before January 1, 2024, the initial BOI Report is due no later than January 1, 2025.

If your reporting company was created on or after January 1, 2024, then the initial BOI Report is due within 30 calendar date of the entity's creation date.

Once the initial BOI report is filed, it is required to be updated upon any change to the previously reported information. The updated report must be filed within 30 calendar days of the change.

How can Delap help?

Our advisors can help identify your beneficial owners and establish internal procedures to develop a compliance program. We also encourage you to consult with legal counsel specializing in corporate law and regulatory compliance. Legal professionals can provide specific guidance tailored to your circumstances and help navigate the intricacies of the Corporate Transparency Act .

We are here to support you as you adapt to the requirements of the CTA!

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