Understanding the Corporate Transparency Act

Passed in 2021, the new Corporate Transparency Act goes into effect on Jan. 1, 2024. The bill was designed to reduce tax fraud and money laundering and contains a range of new requirements and regulations for millions of business entities in the U.S. and foreign companies that do business in the U.S. Let’s take a closer look at the Corporate Transparency Act, what it means for business owners in New York, and how you can take advantage of a special offer to simplify your Transparency Act reporting.

Introduction to the Corporate Transparency Act

The Corporate Transparency Act (CTA) is the latest in a series of congressional bills intended to reduce money laundering and tax fraud by using shell companies and other opaque business entities. It requires companies to report information about their owners directly to the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN). The resulting database of beneficial owners will be available to law enforcement and other enforcement agencies investigating financial crimes.

The CTA is a critical tool in fighting illegal activities, tax evasion, money laundering, certain types of fraud, and financial terrorism. However, building this database requires the compliance of millions of American business owners, who must comply with a new set of regulations and reporting procedures. The CTA is complex, and penalties for non-compliance are severe. If you have questions about how your business is affected by the Corporate Transparency Act, it is important to consult with a corporate lawyer and get personalized guidance.

What Is Beneficial Ownership Information?

At its heart, the Corporate Transparency Act is a tool for gathering information about the beneficial owners of a company or business entity. Businesses are required to report certain information about their ownership directly to FinCEN. A “beneficial owner” is defined as any individual who exercises “substantial control” over a company or any individual who owns or controls not less than 25% equity in a business entity.

For any qualifying individual, the reporting company must provide:

• The beneficial owner’s name
• Their date of birth
• Their residential or business address
• The number of a unique identifying document such as a state-issued driver’s license or passport

However, certain individuals are specifically excluded from BOI reporting requirements. These individuals are NOT required to file BOI information:

• A minor, as long as their parent or guardian is reported
• An individual acting as an agent or intermediary on behalf of another
• A person whose control over the company is solely derived from their employment
• A person whose only interest in the company is through a right of inheritance
• A creditor of the reporting company unless the creditor also exercises substantial control over the company

The term “substantial control” is not defined in the CTA, so many businesses will require further clarification about its precise meaning.

BOI data will not be publicly disclosed or available. The data will be available only to law enforcement or other enforcement agencies if authorized by a court order. In addition, a reporting company may make BOI data available to financial institutions for due diligence purposes.

Entities Required to File Beneficial Ownership Information

Not all entities or business types are required to complete and report BOI. The legislation broadly defines reporting requirements to apply to any corporation, LLC, or business entity created by filing a document with the secretary of state or similar official or a business entity formed under the laws of a foreign country and registered to do business in the United States.

Exemptions from the CTA Filing Requirements

Because the CTA is primarily aimed at shell companies and because certain types of businesses are already subject to similar reporting requirements, there are numerous exceptions and exemptions from CTA reporting requirements. Exempt entities include:

• Various financial, investment, accounting, and insurance entities are subject to existing reporting procedures and regulations, including:
• A registered issuer of securities
• A bank or a federal or state credit union
• A bank or savings and loan holding company
• A registered money-transmitting business
• A broker, dealer, agency, or other types of entities registered with the Securities Exchange Commission (SEC) under the Exchange Act
• Investment companies and/or advisors who are registered and make certain filings with the SEC
• Certain entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act
• Insurance companies or producers that are authorized by a state commissioner and have a physical office within the United States
• A public accounting firm registered under the Sarbanes-Oxley Act
• A financial market utility designated by the Financial Stability Oversight Council
• A pooled investment vehicle operated or advised by entities included in the clauses above
• An entity exercising governmental authority on behalf of the United States or a state or political subdivision
• A public utility that provides telecom, electric, gas, water, or sewer services within the United States
• A tax-exempt 501(c) corporation or other tax-exempt charitable organization. Certain corporations, LLCs, or other companies that operate exclusively to provide financial assistance to, or hold governance rights over, 501(c) and other tax-exempt organizations
• An entity that employs more than 20 FTEs in the United States has a physical office in the United States and filed a Federal income tax return in the previous year showing more than $5,000,000 in gross receipts or sales
• A corporation, LLC, or entity that has been in existence for over a year has not engaged in active business, does not hold any type of assets or ownership interest in a business, has not sent or received funds in excess of $1,000 in the preceding 12 months, is not directly or indirectly owned by a foreign person and has not experienced a change of ownership in the preceding 12 months.
• A corporation, LLC, or other entity where ownership interests are owned or controlled, directly or indirectly, by one or more of the exempt entities above or an “exempt subsidiary.”

Some businesses that are exempt subsidiaries, grandfathered entities, and other types of entities may no longer meet the exemption criteria and will be required to submit BOI data. This list is not comprehensive or detailed. If you have any questions about your CTA reporting requirements, consult with a qualified corporate attorney for individual advice.

Corporate Transparency Act Filing Deadlines and Requirements

CTA filings will be completed online using an electronic system known as the Beneficial Ownership Secure System (BOSS). Non-exempt entities are required to file BOI directly with FinCEN. Filing deadlines are as follows:

• For reporting entities created before Jan. 1, 2024: BOI must be filed before Jan. 1, 2025
• For reporting entities created between Jan. 1, 2024, and Dec. 31, 2024: the entity has 90 calendar days from the official notice of their effective registration date in which to file BOI
• For reporting entities created or registered on or after Jan. 1, 2025: the entity has 30 calendar days from the official notice of their effective registration date in which to file BOI

Penalties for Noncompliance with the Corporate Transparency Act

Penalties for noncompliance with the CTA are steep, with escalating fines and potential imprisonment. Penalties include:

• Up to $10,000 fine per violation
• Up to $500 per day of noncompliance
• Jail time of up to two years if a reporting entity or its agent are found to be intentionally, criminally, non-compliant

Although the CTA was passed in 2021, many business owners are still unclear about how the new law applies to them. In order to avoid these penalties and the consequences of noncompliance, it is critical to speak with a qualified corporate attorney to understand how to make CTA compliance part of your business.

How the Fridman Law Firm Can Assist with BOI Filing and CTA Compliance

The Corporate Transparency Act will impact an estimated 32 million American businesses today and will affect an estimated 5 million new businesses every year. Affected entities have from Jan. 1, 2024, to Jan. 1, 2025, to understand how the law affects them and how to comply with the new requirements.

Because this is sweeping, new legislation, many questions about application and implementation have yet to be answered. However, because noncompliance penalties are steep and escalating, it is critical for business owners to understand how CTA affects their business.

The Fridman Law Firm is experienced in all matters related to corporate law, fund formation and venture capital, and startups and entrepreneurship. The experts at the Fridman Law Firm can help existing owners understand whether CTA applies to their business and also guide new ventures and entities in CTA compliance.

For a limited time, the Fridman Law Firm is offering BOI reporting for a flat fee of $399 per entity. This special promotion will simplify compliance, avoid deadlines and penalties, and start the new year off on the right foot. Contact the Fridman Law Firm today for a Corporate Transparency Act consultation, or call 212-262-9823.

The Federal Corporate Transparency Act and New York’s LLC Transparency Act

Business owners in the state of New York may recognize the federal Transparency Act as being very similar to New York’s LLC Transparency Act. In fact, the two laws are extremely similar, and both acts are effective Jan. 1, 2024. Here is a brief summary of what New York business owners need to know about compliance with both CTA and the LLC Transparency Act.

Similarities Between the Federal CTA and the New York LLC Transparency Act

Both acts are aimed at improving transparency in the ownership of business entities in order to reduce tax fraud, money laundering, and financial crimes. Here are the key factors both laws have in common:

• Both laws take effect on Jan. 1, 2024
• Both laws require existing reporting entities to make their initial BOI report by Jan. 1, 2025, with the same reporting time frames for businesses formed on or after Jan. 1, 2024
• Both laws require disclosure of “beneficial owners” of businesses
• Both laws define “beneficial owner” in the same way and have the same exemptions
• Both laws require the same information about the “beneficial owner” — their name, date of birth, residential or business address, and the number of a legal identity document
• Both laws will make this information available to law enforcement and other entities with a court order
• While the New York LLC Transparency Act applies to all LLCs, it recognizes the same entity exemptions as the CTA (financial institutions, etc). If an entity is not required to report for the CTA, it is not required to report for the LLC Transparency Act
• Businesses can use a copy of the Federal FinCEN form to complete their New York disclosure requirements

Differences Between the Federal CTA and the New York LLC Transparency Act

Here are the key differences between these two pieces of legislation:

• The LLC Transparency Act applies to LLCs registered in the State of New York. The Federal CTA applies to a wider range of business types and entities.
• The LLC Transparency Act will make the names of beneficial owners available in a publicly searchable database (although it will not disclose any other information to the public). The Federal CTA does not share any information with the public. The LLC Transparency Act allows LLCs to request a waiver to withhold their BOI information if disclosure poses significant privacy concerns.
• Noncompliance with the LLC Transparency Act for a period exceeding two years will cause the LLC to become “delinquent” on the New York Department of State records. The New York Secretary of State makes a quarterly pronouncement dissolving delinquent corporations. There is a $250 reinstatement fee to remove “delinquent” status

New York has not yet specified the reporting procedure for compliance with the LLC Transparency Act, but businesses that are prepared by complying with the Federal CTA will have all the information necessary to remain in good standing in New York.

For entrepreneurs and startups in New York, this legislation may be worth considering as you choose whether an LLC is the right type of business entity for your venture. For more information about choosing a business type, transparency requirements, and legal compliance, consult with a New York corporate attorney. New York businesses can also take advantage of our limited-time flat-fee BOI reporting for just $399, and be a step ahead of New York’s reporting requirements as well. Contact the Fridman Law Firm for more information.

Frequently Asked Questions