The Corporate Transparency Act and What Happens Next
By: Lindsey Abboushi- North Carolina Licensed Attorney with Brownlee Whitlow & Praet, PLLC
The Corporate Transparency Act (“CTA”) was implemented by Congress January 1st, 2024, in hopes to prevent money laundering and other financial crimes. The purpose of the CTA is to put faces to entities instead of having entities conceal
their ownership interests by using LLC after LLC to make it a treasure hunt to find Beneficial Owners. To implement this “transparency,” the Financial Crimes Enforcement Network, also known as FinCEN, has created a Beneficial Ownership Filing System (“BOI E-Filing”) to track Beneficial Owners of Reporting Companies in a US Database.
So, who is classified as a Beneficial Owner? A Beneficial Owner is defined as any individual who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise, exercises substantial control over a Reporting Company, or owns or controls at least 25 percent of the Reporting Company’s ownership interests. Every LLC must have at
least one Beneficial Owner. Of course, the act has a few exceptions for those who do not qualify as Beneficial Owners.
Currently, there are 5 exceptions: (1) minor children; (2) nominee, intermediary, custodian, or agent; (3) employees; (4) inheritors; and (5) creditors. Further detailed information on the CTA can be easily found on the FinCEN website (www.fincen.gov).
What companies are considered Reporting Companies? According to the CTA there are two types of Reporting Companies: Domestic and Foreign.
Domestic Reporting Companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the US.
Foreign Reporting Companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the US by the filing of a document with the secretary of state or any similar office.
Similarly with the Beneficial Ownership classifications, there are currently 23 types of entities that are exempt from the
reporting requirements. A few examples of the types of entities exempt are: banks, credit unions, and insurance companies.
The most common exemption that our industry will most likely see is the Large Operating Company Exemption #21 (“LOC exemption”). In order to classify for the LOC exemption, an entity must meet six requirements: 1) the entity must employ more than 20 full time employees; 2) more than 20 full time employees must be employed in the United States; 3) the entity has an operating presence at a physical office in the United States; 4) the entity must have filed a Federal income tax or informational return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales; 5) the entity reported this greater than $5,000,000 amount as gross receipts or sales on the entity’s IRS Form 1120, consolidated IRS Form1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form; and 6) when gross receipts or sales from sources outside the United States, as determined under the Federal income tax principle, are excluded from the entity’s amount of
gross receipts or sales, the amount remains greater than $5,000,000. If all six requirements are met, the LOC exemption
applies. Further information on exemptions can also be found on the FinCEN website.
As a result of the new reporting requirements, FinCEN has created an e-filing system, the Beneficial Ownership E-Filing
System (BOI E-Filing System) to make reporting as user friendly as possible so that the Beneficial Owners are encouraged to
file themselves, and on time. As the CTA is a newly implemented act and the reporting requirements are new, there will be
constant updates on the FinCEN website to address any questions that may arise.
Reporting deadlines are as follows:
• A Reporting Company created or registered to do business before 1/1/2024 has until 1/1/2025 to file.
• A Reporting Company created or registered to do business on or after 1/1/2024 and before 1/1/2025 will
have 90 calendar days after receiving actual or public notice to file.
• A Reporting Company created or registered to do business on or after 1/1/2025 will have 30 calendar days after receiving actual or public notice to file.
*Deadlines run from the time the company receives actual notice that its creation or registration
is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
Non-compliance with reporting can result in some pretty hefty daily fines and possible imprisonment, so please file,
and file on time!
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information in this article is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. Viewers of this material should contact their attorney to obtain advice with respect to any particular legal matter. No viewer of this material should act or refrain from acting on the basis of information in this presentation without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article does not create an attorney-client relationship between the reader and Brownlee Whitlow & Praet, PLLC or any contributing law firms. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.
