The CTA: Time is Running Out

By Michael High, Brittany Michaud, and Andrew Sweeney

October 31, 2024

 

The CTA: Time is Running Out

The filing deadline for compliance with the Corporate Transparency Act (the “CTA”) for reporting companies formed before January 1, 2024 is December 31, 2024, less than three months from now. If you have not done so already, it is time to pay attention to the CTA and either make the necessary filings or confirm definitively that you are exempt. The following is a brief summary of the actions our clients should take promptly to ensure compliance with the CTA. For a more detailed explanation of the CTA’s requirements, see Get Ready for the Corporate Transparency Act – Drummond Woodsum (dwmlaw.com), which we circulated to clients earlier this year.

First, a very brief refresher on the purpose and scope of the CTA. The CTA was designed to identify money laundering schemes and other similar financial crimes, certainly a laudable policy objective, but unfortunately it also imposes a series of new and potentially burdensome filing requirements on the vast majority of businesses. The CTA applies to any entity that is formed in the United States (or to any foreign entity that is registered to do business in the United States) by the filing of a document with the appropriate state or tribal governmental office, such as the Secretary of State of a company’s jurisdiction of organization. Thus, for example, the CTA will apply to any limited liability company or corporation that is or was formed by filing a certificate or articles with a given state’s Secretary of State or tribal filing office. This includes the vast majority of our clients. Reporting companies will be required to provide information regarding the company, its beneficial owners and company applicants.

Our clients should be aware of the following obligations under the CTA:

Who must file?

Any business that was formed by the filing of a document with a state or tribal governmental office (for example, the Secretary of State) must file a beneficial owner report with FinCEN if it does not qualify for an exemption.

What must be reported?

Companies must report information about (i) the reporting company (a company that does not qualify for an exemption), (ii) information about the reporting company’s beneficial owners and (iii) for entities formed on or after January 1, 2024, the individuals who helped form the company, referred to as the “company applicants.” Beneficial owners and company applicants of reporting companies must report personally identifying information, including the individual’s name, date of birth, address and provide a driver’s license or passport number. For more detailed information on what is required for each reporting company’s beneficial owner and company applicant, see Get Ready for the Corporate Transparency Act – Drummond Woodsum (dwmlaw.com) and https://www.fincen.gov/boi-faqs#F_1.

Who is a beneficial owner and company applicant?

Beneficial owners are generally the individuals who (i) exercise “substantial control” over the company; or (ii) own or control at least 25% of the equity interests of a reporting company. A full summary on who is a beneficial owner can be found at https://www.fincen.gov/boi-faqs#D_1.

The company applicant is the individual(s) who directly files the document that creates or registers the company with the applicable governmental office. Only companies created on or after January 1, 2024, will need to report the company applicant. A full summary on who is a company applicant can be found at https://www.fincen.gov/boi-faqs#E_1.

Exemptions

There are a number of categories of businesses that are exempt from the CTA filing requirement. A full list of exemptions can be found at https://www.fincen.gov/boi-faqs#C_2. The exemptions that are most likely to be applicable to our clients include (i) an exemption for so-called “large operating companies” (companies with at least 21 full-time employees in the United States that reported more than $5 million in gross receipts or sales on their filed prior year’s United States federal income tax return (net of returns and allowances, excluding gross receipts or sales from sources outside the United States, but including the receipts or sales of other entities owned by the entity and through which the entity operates), and that have an operating presence at a physical office in the United States) and (ii) organizations described in section 501(c) of the Internal Revenue Code (“Code”) and tax exempt under section 501(a) of the Code. The vast majority of our clients will be subject to the CTA’s reporting requirements.

Filing Process

Reporting companies can upload a PDF or prepare a beneficial owner report directly online using FinCEN’s web-based application at https://boiefiling.fincen.gov/fileboir. You do not need to file a report if the company qualifies for an exemption. Individuals can apply for a “FinCEN identifier,” which is a unique identifying number issued to an individual after submitting an application providing the individual’s personally identifiable information. Once a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report it in place of the otherwise required four pieces of personal information about the individual in BOI reports. A reporting company may also use the FinCEN identifiers when it submits a beneficial owner report by checking a box on the reporting form. Individuals can file for a FinCEN ID at https://fincenid.fincen.gov/landing.

There is no fee or charge associated with direct filing and many of our clients have had success filing directly. In the alternative, there are a number of third-party service providers who offer assistance with BOI report filings and required updates, such as such as CT Corporation, Corporation Service Company, SingleFile and Cogency.

Deadlines for Initial Filings

  • For entities formed or registered prior to January 1, 2024: By December 31, 2024. Avoid the end-of-year rush!
  • For entities formed in 2024: Within 90 days of formation or registration.
  • For entities formed or registered on or after January 1, 2025: Within 30 days of formation or registration.

Please pay attention to these filing deadlines.

Ongoing Filing Obligations

Reporting companies must update filings for any change in information about the reporting company or its beneficial owners within 30 days of the change. Updated beneficial ownership information reports can be filed using the same means as the prior filing on FinCEN’s online portal at https://boiefiling.fincen.gov/fileboir.

Update Your Documents

We also recommend that our clients review and update their company’s organizational documents (for example, bylaws, shareholders agreements and LLC agreements) in view of the requirements of the CTA. These provisions include requiring the owners, directors, managers and certain officers to provide and update information required to effect and update the company’s CTA filings. Companies should also consider appointing a CTA compliance officer to monitor and update a reporting company’s filing.

Penalties

A reporting company that fails to comply with the filing requirements in the CTA is subject to potential civil or criminal penalties.

Don’t Delay

The end of the year is fast approaching so now is the time to focus on your obligations under the CTA. As you navigate your way through this the CTA’s requirements, if you have any questions or would like more information on specific issues, please reach out to your contact at Drummond Woodsum who can coordinate with the firm’s CTA experts to provide you with assistance.

Additional Resources