Corporate Transparency Act
The Corporate Transparency Act, a federal legislation enacted on January 1, 2021 and entering into force on January 1, 2024 (“CTA”), requires certain domestic and foreign entities (where such entities fall under the definition of a “Reporting Company”) to comply with reporting requirements of the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, including to report and file certain identifying information pertaining to the Reporting Company, including individuals who directly or indirectly own or control a Reporting Company within the scope of the legislation (“Beneficial Owners”). The purpose of the federal legislation is to enhance transparency and to combat the proliferation of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States.
Which Entities Must Report:
Reporting Companies include both Domestic Reporting Companies and Foreign Reporting Companies:
Domestic Reporting Companies includes any entity that is a corporation, a limited liability company, other any other entity created by the filing of a document with the Secretary of State, or any similar office under the law of a State or Indian Tribe.
Foreign reporting companies include any entity that is a corporation, limited liability company, or other entity formed under the law of a foreign country, and registered to do business in any State or tribal jurisdiction by the filing of a document with a Secretary of State or any similar office under the law of a State or Indian Tribe.
There are certain entities that are not within the scope of being considered a Reporting Company, including sole proprietorships (that are not entities and created by filing), general partnerships that are created by operation of law or by contract (rather than by filing), unincorporated associations, common-law trusts, and foreign entities not registered to do business in a State or Indian tribe. In addition, the CTA also outlines many types of entities that are exempt from filing a report with FinCEN under the legislation.
What Information must be Reported:
Under the CTA, Reporting Companies are required to file a report with FinCEN to disclose specific information about the Reporting Company, its Beneficial Owners, and if applicable, the Company Applicants.
The Reporting Company must report the full legal name of the Reporting Company, any and all trade names or “doing business as” names, the business street address of the reporting company, the state or tribal jurisdiction of formation (or for a Foreign Reporting Company, state or tribal jurisdiction where such company first registers), and the IRS taxpayer identification number (TIN), including an EIN of the Reporting Company (or for Foreign Reporting Companies without a TIN, a foreign tax identification number and the name of the relevant jurisdiction).
Individuals that qualify as a “Beneficial Owner” must report Beneficial Owner Information (“BOI”), including each of their full legal name, date of birth, current residential address, ID number from acceptable ID Document, and an image of the document relating to the unique ID number.
Where the Reporting Company is formed on or after January 1, 2024, up to two (2) individuals that qualify as a “Company Applicant” must report similar information as Beneficial Owners must report with FinCEN, including their full legal name, date of birth, current residential address (or business address for a Company Applicant if in the business of forming entities), identifying number from acceptable ID Document, and images of the document relating to the unique ID number.
FinCEN is charged with prescribing the form and manner of the report, as well as administering a centralized, secure non-public federal government database where the collected information will be housed by the U.S. Department of the Treasury.
When Must the Report be Filed:
Pre-Existing Reporting Companies (i.e., formed/registered prior to January 1, 2024) must file by no later than 1 year after the effective date (i.e., by January 1, 2025)
Newly created/registered Reporting Companies (i.e., formed on or after January 1, 2024) must file within thirty (30) days of the earlier of:
o The date on which a Reporting Company received actual notice that its creation (or registration) became effective, or
o The date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the Reporting Company has been created (for Domestic Reporting Company) or registered (for Foreign Reporting Company).
o As an additional note, FinCEN issued a Notice of Proposed Rulemaking on September 27, 2023, that if finalized, would extend the period for which Reporting Companies formed on or after January 1, 2024, and before January 1, 2025, must file their initial report from thirty (30) days to ninety (90) days from the formation of the Reporting Company. If the proposed regulations are published as a Final Rule, this extension will apply to entities formed in 2024 that qualify as Reporting Companies.
Updating Prior Reports: Reporting Companies must update reported information within thirty (30) days of the date of change to ensure that FinCEN has accurate and up-to-date information.
Correcting Prior Reports: Reporting Companies must correct any information within thirty (30) days of the date the Reporting Company becomes aware, or has reason to know, that any required information contained in any report was inaccurate when filed and remains inaccurate. However, to qualify for a safe harbor provision under 31 U.S.C. 5336(h)(3)(C)(i)(I)(bb), the corrected report must be filed within ninety (90) days after the date on which an inaccurate report is filed with FinCEN.
Possible Civil and Criminal Penalties for Non-Compliance:
Significant civil and criminal penalties can be imposed for willful non-compliance, to include a failure to report, failure to update beneficial ownership information and failure to correct inaccurate beneficial ownership information. Civil penalties include a daily $500 fine for continuing violation, up to maximum of $10,000. Criminal penalties may include up to two years of imprisonment.
Barbosa Legal will provide the necessary services so that clients can comply with the requirements of the Corporate Transparency Act. If this is of interest, please contact us via email esilva@barbosalegal.com or gbarbosa@barbosalegal.com, or via WhatsApp +1 (786) 351-9469 for full details.