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The Corporate Transparency Act (the “CTA”) is a federal law that requires corporations, limited liability companies and like entities formed by filing a document with a secretary of state or similar office under the law of a state to disclose their beneficial ownership interests. The purpose of the law is to identify the “true” owners of entities and better guard against their use to perpetrate financial crimes. The filing requirement, subject to certain exemptions, applies to all such entities regardless of whether the entity is an active business or simply a vehicle to hold assets. For instance, an LLC formed for the purpose of holding investment assets or real estate will be required to file.
A beneficial owner is a natural person who:
· owns, directly or indirectly, twenty-five percent (25%) or more of the entity’s equity interests – up to four individuals may satisfy this prong;
· exercises substantial control over the entity – this would include anyone who can merger or dissolve the entity, or a person (such as a C-suite executive or LLC Manager) who controls the entity’s activities; or
· is a company applicant – this is a person who files or directs the filing of documents with a secretary of state’s office actually forming the entity in question (includes a maximum of two disclosed individuals such a lawyer and the lawyer’s paralegal and only applies to entities formed after January 1, 2024).
The CTA contains twenty-three (23) exemptions. Examples of common exemptions are:
· Banks;
· Publicly traded securities issuer;
· Other regulated entities – e.g., insurance companies, registered investment advisors, broker dealers, accounting fims;
· Tax-exempt entities – e.g., 501(c) entities;
· Large operating companies – an entity with twenty (20) or more full time employees, a physical office within the United States, and gross receipts greater than $5,000,000.00.
The deadline to file required disclosures for entities formed prior to January 1, 2024 is January 1, 2025. Entities formed after January 1, 2024 but before January 1, 2025 have ninety (90) days following formation to file disclosures. Entities formed after January 1, 2025 will have thirty (30) days following formation to file.
Entities must file disclosures with the Financial Crimes Enforcement Network (“FinCEN”) using the BOI E-Filing System (https://boiefiling.fincen.gov). For each beneficial owner, a reporting entity must provide the individual’s:
· Full legal name;
· Date of birth;
· Current Address; and
· Identification number from a valid driver’s license, passport or other government issued identification and image of the identification document showing both the identification number and individual’s photograph.
Disclosures are confidential and not available to the public.
Beneficial owners may also apply for a FinCEN identifier by submitting the required disclosure information (https://fincenid.fincen.gov/landing). The FinCEN identifier can then be used in entity disclosures and can be updated by the individual when required which will automatically update entity disclosures to which it is attached.
Changes to disclosed beneficial ownership information must be reported within thirty (30) days. Likewise, if an entity discovers that it has disclosed inaccurate information, it must correct its filing within thirty (30) days of such discovery.
Are there consequences for not providing required disclosure?
A failure to file a required disclosure can result in a civil penalty of up to $500 per day for each day the violation continues and criminal penalties up to $10,000, up to two years in prison or both.
· Beneficial Ownership Information Reporting Rule, https://www.fincen.gov/boi;
· FinCEN Beneficial Ownership Reporting FAQ, https://www.fincen.gov/boi-faqs#B_1; and
· FinCEN’s Small Entity Compliance Guide, https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
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1 The information contained herein is intended as a general overview and should not be construed as legal advice. Readers should not act upon it without professional counsel and should seek advice applicable to their specific situation.
Disclaimer:
This presentation has been prepared by Market Street Trust Company. The views expressed herein represent opinions of Market Street and are presented for informational purposes only. They are not intended to be recommendations or investment advice and do not take into account the individual financial circumstances or objectives of the investor who receives them.
Certain statements included in this presentation constitute forward looking statements. Forward looking statements are not facts but reflect current thinking regarding future events or results. These forward looking statements are subject to risks that may result in actual results being materially different from current expectations.
Past performance (before and after taxes) does not guarantee future performance. There is no assurance that Market Street Trust Company investments will achieve their objectives, or that they will or are likely to achieve results comparable to results shown herein, or will make any profit, or will be able to avoid incurring losses. Exposure to foreign currencies may cause additional fluctuation in the value of any investment. Each investor must assess the suitability of an investment, the investor’s tolerance for risk and the impact on the investor’s diversification strategy. This presentation does not constitute an invitation to buy or an offer to sell securities, or any other products or services.
This is intended as general information only. Investors maybe required to meet certain criteria under the securities laws in order to qualify for certain investments. Any discussion of U.S. tax matters is not intended and cannot be used or relied upon for the purpose of avoiding U.S. tax-related penalties. Please visit our website for additional information concerning Market Street’s investments and investment updates. As always, please feel free to contact us if you would like to learn more about our investment program.
