BUSINESS OWNERS - In line with countries and unions including the United Kingdom, Canada, and the European Union, the United States has enacted a mandatory beneficial owner reporting requirement for business owners.
Enacted through the Corporate Transparency Act (CTA), the purpose of this legislation and the reports that are to be filed is to fight corruption by the identification of connections between illicit actors and opaque business entities. These reports are collected by the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury Department. FinCEN has adopted a Beneficial Ownership Information Reporting Rule that sets forth the reporting requirements. See www.fincen.gov/boi or https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet.
Both existing and newly created domestic and foreign companies registered in the United States are required to submit a report including information for its beneficial owners, or those who exercise substantial control over the company or own/control at least 25% of the company’s ownership interests. The report also requires information about newly created entities’ company applicants. In addition to the filing of the initial report, companies must also submit reports when beneficial ownership information changes. These ownership information change reports must be submitted within 30 days of that change. The required reports are filed with FinCEN through its Beneficial Ownership Secure System, referred to as “BOSS.”
This new rule incorporates several exemptions, such as those for tax-exempt entities, subsidiaries, and large operating companies (companies which (1) employ more than 20 employees on a full-time basis in the United States, (2) filed in the previous year United States income tax returns of more than $5,000,000 in gross receipts or sales, including through other entities owned by the business, and (3) have an operating presence at a physical office within the United States).
Failure to comply with this new rule and provide accurate information could lead to civil or criminal penalties of up to $250,000 and up to 5 years of imprisonment.
Companies created or registered to do business before January 1, 2024, must file their initial reports by January 1, 2025. Companies created or registered in 2024 have 90 calendar days in which to file their report. Companies created or registered on or after January 1, 2025, will have 30 calendar days to file their report.
Companies must evaluate whether it is required to submit a beneficial ownership information report, what information must be included in their report, and when their report must be submitted.
Rees Broome, PC is here to assist you in answering your questions about the CTA in general, determining whether your beneficial owners need to file a report, and filing of the required reports.
UPDATE – On March 1, 2024, the United States District Court for the Northern District of Alabama, Northeastern Division, ruled that the Corporate Transparency Act is unconstitutional as “it cannot be justified as an exercise of Congress’ enumerated powers.” While this decision is important, it does not have nationwide effect at this time and clients that are not based in Alabama, are currently unaffected by the opinion. We will continue to monitor the status of the CTA for further updates.
Contact Samantha J. Levin, Esq., at 703-790-1911 or SLevin@reesbroome.com or any of the Rees Broome, PC corporate attorneys if you have questions or need assistance complying with this new law.
By Samantha J. Levin, Esq.
(703) 790-1911