This communication is to notify active business clients of Sheehey Furlong & Behm P.C. about a significant change in federal law that may impact your business or organization, and if it applies to your entity, it will require you to take action prior to December 31, 2024.
In January 2021, Congress passed, and President Trump signed into law, the Corporate Transparency Act (CTA). The CTA requires “Reporting Companies” to disclose personal identifying information about the individuals who are “Beneficial Owners” to the Financial Crimes Enforcement Network (FinCEN), a unit of the U.S. Department of the Treasury. FinCEN will maintain information gathered in a secure, non-public database for use by governmental authorities, certain financial institutions, and financial regulators. The CTA’s stated purpose is to combat the proliferation of anonymous shell companies used by illicit actors for criminal purposes, such as money laundering and terrorism-related activities in the United States.
The law applies to all Reporting Companies. A “Reporting Company” is defined as a corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office, or formed under the laws of a foreign country but registered to do business in the United States. There are 23 exemptions from the definition of a Reporting Company, most of which are focused on entities that are already highly regulated, such as financial institutions, public utilities, accounting firms, and certain insurance related businesses. In addition, all charitable tax-exempt non-profit organizations are exempt. Other forms of non-profit entities, including homeowners’ associations, are not exempt. There is also a catch-all exemption for large operating companies. If your entity employs more than 20 full time employees in the United States, has a physical office within the US, and has filed a federal income tax or information return for the previous year reporting more than $5,000,000 in gross receipts or sales, then it qualifies as a Large Operating Company and is exempt.
If your entity does not fit in one of the exemptions, it is a Reporting Company. All single member LLCs and single shareholder corporations are Reporting Companies and are covered by and required to comply with the CTA. Reporting Companies must make a filing disclosing their Beneficial Owners by December 31, 2024. A Beneficial Owner is any individual who, directly or indirectly, exercises “Substantial Control” over a Reporting Company (such as a President or other officer or a Director) or owns or controls at least 25 percent of the Ownership Interests (as a Member, Partner or Shareholder) of a Reporting Company.
The deadline for the initial filing with FinCEN is December 31, 2024. The filing will require each Beneficial Owner to provide a copy of a driver’s license or passport. We can assist our business clients in determining whether there is an obligation to make a filing, and in identifying the appropriate Beneficial Owners to report. However, the firm is not preparing or making these filings for clients because it would require us to keep copies of sensitive personal data on file for many years.
Clients have two options for filing:
- Self-File The FinCEN system is user friendly, and many of our clients should be able to complete the on-line filing (which is free) themselves by going to https://boiefiling.fincen.gov/ . To prepare for the filing, you will want to have your business EIN or the social security number associated with the entity, basic company information that can be found in your Articles of Incorporation or Articles of Organization, the address and contact information for each Beneficial Owner, and a scanned copy of a driver’s license or passport for each Beneficial Owner.
- Third Party Filer There are many companies that will do these filings for you, such as CSC Global or CT Corporation. Our firm works with these companies on other types of corporate filings involving other states. They are reputable firms, but they do charge fees for the filing. We have not vetted either of these company’s offerings around CTA compliance, or inquired about their fees, and we are unable to make a more detailed recommendation about their services and offerings. There are many other companies offering to manage Beneficial Owner filings and Corporate Transparency Act compliance. Please vet them carefully if you choose to use a third party filer. FinCEN has issued warnings about scam companies who offer such services as a ruse in order to collect sensitive personal information for their own criminal activities and never complete the actual filing.
Finally, there are on-going reporting obligations under the CTA. Unless there is some change in the law going forward, there will be ongoing filing obligations. A Reporting Company is obligated to update its information with FinCEN any time the entity has a change of address or name, the Beneficial Owners change (new member of the Board of Directors, for example), or the identifying number on a driver’s license or passport changes for a Beneficial Owner. You do not need to update when a license or passport expires, unless your name, address or identifying number changes.
There are significant penalties for failing to make the initial filing or to keep FinCEN updated. Please contact the lawyers at Sheehey Furlong & Behm if you have questions about this new federal requirement by emailing Compliance@sheeheyvt.com. Don’t wait until late December to file!
