You may already be familiar with the upcoming Corporate Transparency Act set to kick in next year. If you aren’t, keep reading because it could impact you. Starting January 1, 2024, every small business will be obligated to submit an annual report revealing the names of their major owners.
What Is the Purpose of the Corporate Transparency Act and What Does It Require?
The Corporate Transparency Act was adopted in 2020 and takes effect on January 1, 2024. The CTA is intended to address money laundering, terrorism, and financial schemes involving shell corporations (companies that exist on paper but do not actually do any business—like Vamanos Pest in Breaking Bad).
Under this Act, small companies will now have to disclose the names of any owners who hold 25% or more ownership in the company, as well as any individuals who exercise significant control over the company's activities. The goal is to identify and expose shell corporations that are frequently involved in money laundering, as such illicit activities tend to occur within small businesses rather than large corporations.
To comply with the requirements, businesses must submit an annual report to the Financial Crimes Enforcement Network (FinCEN) containing the following details about each owner or controller:
Business name
Current business address
State in which the business was formed and its Entity Identification Number (EIN)
Owner/controller’s name, birth date, and address
Photocopy of a government-issued photo ID (such as a driver’s license or passport) of every direct or indirect owner or controller of the company
Failing to file an annual report could result in serious repercussions, from paying a fine of $500 for every day the report is late up to imprisonment for two years.
Does My Trust Need to Be Disclosed?
Your Trust does not have to be disclosed. However, your Trust may own membership interests or stock in a company that needs to be disclosed. You are required to report for any company that is created by filing a formation document with the Secretary of State: this means corporations and limited liability companies (LLCs).
Non-profits, publicly traded companies, and regulated companies like banks and investment advisors are exempt from the rule. Large companies are also exempt if they have 20 or more full-time employees in the US and generate $5 million in sales. If your trust owns a share of any of these types of companies, it does not need to be reported.
If you have an LLC or corporation you created but aren’t actively using it to run a business, that company is exempt from reporting due to its inactivity, so your Trust would not be reported in that instance, either.
If your Trust owns a share of a small, for-profit company (like a small family business or local investment), the beneficial owner of the Trust will need to be reported to the Financial Crimes Enforcement Network.
The beneficial owner is the person or people who benefit from the Trust or have the power to make major decisions about the Trust assets. Depending on how your Trust is written, this is usually the trustee, but it can also be the beneficiaries of your Trust.
Does my Community Association Need to Report?
As of this writing: yes. Homeowners' and Condominium Associations fall into the category of required reporting. The industry initially assumed this was a mistake and a rule-change would come. But it hasn't. Community Associations need to report the names, addresses, and provide a copy of each person's ID who have control of important decisions. This would be the board members or the developer (if under developer control). Existing Community Associations have until January 1, 2025, to file their first report.
It’s important to collect the right information and report it on time.
FinCEN expects that at least one individual exercises substantial control over each reporting company. Individuals who meet one of the following criteria are considered to exercise substantial control over the HOA:
the individual is a senior officer;
the individual has authority to appoint or remove certain officers or a majority of directors of the HOA;
the individual is an important decision-maker; or
the individual has any other form of substantial control over the HOA.
FinCEN’s BOI webpage provides:
Answers to Frequently Asked Questions;
Infographics, such as the following about Key Filing Dates; and
An introductory video and more detailed informational video, available at FinCEN.gov/BOI.
If your Community Association needs help, talk to your management company or your general counsel.
This article is a service of Rayboun Winegardner, PLLC, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session.
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