A new federal law, the Corporate Transparency Act (CTA), effective Jan. 1, 2024, impacts almost all limited liability companies (LLCs) and small corporations in the United States. Businesses now have new reporting requirements annually, and these changes may lead to new challenges for small and family business owners. This article provides an overview of the new reporting requirements, the potential impacts on businesses, and how working with the Campbell Law Firm now can provide clear guidance for your Tyler or Mineola business to ensure you remain in compliance with the new federal law.
A component of the Anti-Money Laundering Act of 2020, passed on Jan. 1, 2021, the Corporate Transparency Act (CTA) law became effective on Jan. 1, 2024. The CTA intends to create a new national database of the individuals referred to in the law as 'control persons' or ‘beneficial owners,’ i.e., the individuals who ultimately own or control the company. Companies required to report are referred to as reporting companies. They must submit an annual beneficial ownership information (BOI) report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN. The FinCEN is not part of the Internal Revenue Service (IRS), and the BOI report will not correspond to tax filing information.
The new legislation aims to wade through the entity formalities and determine who owns the company and its assets. The information will aid the U.S. government in identifying foreign and domestic bad actors who use the anonymity provided by various company structures to pursue criminal activities.
Any business entity, such as corporations or LLCs, created by filing a document with the secretary of state or any similar office must now report under the CTA. Small business owners are likely to see the biggest impact of the act, yet this new regulation will affect millions of domestic and foreign companies.
Certain entities like banks, insurance entities, and charitable organizations are exempt from the reporting requirements. For example, large corporations consisting of 20 or more full-time employees, $5 million in gross sales, and an office location in the U.S. are also exempt from the reporting requirements. FinCEN’s Small Entity Compliance Guide provides a list of 23 entities that are exempt from BOI reporting.
FinCEN is conducting extensive outreach online and via press releases and social media for businesses to determine their reporting requirements. Be aware that FinCEN has received reports of malicious groups requesting information via fraudulent letters and emails to individuals and entities who may be subject to reporting requirements under the CTA. FinCEN does not send unsolicited requests. However, individuals can subscribe to an official email list to be updated on BOI reporting.
Companies are expected to report details about the company and the individual(s) holding direct or indirect control of the business entity, known as 'beneficial owners' and senior officials. Companies must submit personal information like full names, birth dates, and addresses of beneficial owners or senior officials. Although the information provided will not be public, FinCEN is authorized to disclose the information to various federal agencies.
Companies will submit reports electronically through the (FinCEN) website. A receipt will be issued upon the submission of the report.
If established before Jan. 1, 2024, reporting companies must file by Jan. 1, 2025. Those formed post-2024 must file within 30 days of inception. Non-compliance or misinformation can lead to steep fines, civil penalties (fines up to $500 per day up to $10,000), and criminal penalties (up to and including imprisonment).
If the trust was not created by filing documents with the Texas Secretary of State or similar office, it does not have BOI reporting requirements. Because state laws vary on how entities such as statutory trusts, business trusts, or other trusts are created, it’s essential to work with the trusted estate planning Campbell Law Firm to determine whether the trust falls within the FinCEN entity exceptions. Also, if a trust holds a reporting company, Tyler Estate Lawyer Bradley S. Campbell will help analyze its terms to determine beneficial ownership.
Trusts provide added layers of protection for Texas businesses. A trust is another type of legal entity, like an LLC, created when one party (grantor) gives another party (trustee) the right to hold title to property or assets for the benefit of a third party (beneficiaries). By definition, trusts protect assets for businesses and individuals, ensuring beneficiaries’ security against potential creditors.
Trusts act as shields against legal actions, especially in cases of small business sales. Removing assets from direct ownership can safeguard against litigation since one cannot be sued for assets they no longer possess. Changing company ownership to a trust may be beneficial depending on your state and how your business entity was formed.
The new BOI reporting requirements for 2024 necessitate a review of your business entity’s status to understand your reporting requirements for the CTA. Even if you are not the owner, you may still be subject to the reporting requirements based on your status in the business. It’s essential to begin now to assemble a list of every privately held entity that you hold an interest in or even exert control over. Obtain a copy of the certificate filed with the state where the entity was formed and any other business ownership information. Then, book a consultation with our Tyler estate law firm to help you navigate the new reporting requirements for businesses.