The deadline for compliance with the Corporate Transparency Act (“CTA”) is quickly approaching. Unless specifically exempt by the CTA, any entity created prior to January 1, 2024 by the filing of a document with a state’s secretary of state (LLCs, Corporations, etc.) or registered to do business in the United States, must file its Beneficial Ownership Information Report (“BOI Report”) by January 1, 2025.
In light of the approaching deadline, the following important information should be noted for compliance.
Reporting Timelines
Reporting companies created prior to January 1, 2024, must file a BOI Report prior to January 1, 2025. Reporting companies formed on or after January 1, 2024 have ninety (90) days from formation to file, and reporting companies formed on or after January 1, 2025 will have thirty (30) days from formation to file.
Additionally, reporting companies have a duty to file updated BOI Reports within thirty (30) days of a change concerning the reporting company or its beneficial ownership.
Penalties
The CTA provides that a willful failure to complete or update beneficial ownership information or willfully providing or attempting to provide false or fraudulent beneficial ownership information may result in civil and/or criminal penalties. Civil penalties can be up to $500.00 for each day a violation continues. Criminal penalties include imprisonment for up to two years and/or a fine of up to $10,000. However, the CTA does create a safe harbor from penalty for those who have reason to believe that a report they filed contains inaccurate information, so long as they voluntarily submit a report correcting the information within ninety (90) days of the deadline for the original report.
Reporting Requirements
Generally, reporting companies are required to submit several key pieces of information regarding beneficial owners including: (i) name; (ii) date of birth; (iii) current residential address; and (iv) a non-expired identification document and number (e.g., driver’s license, passport). Reporting companies must also submit information about the entity itself, such as name, address and tax identification number.
A beneficial owner is defined by the CTA as any individual who either directly or indirectly (i) exercises substantial control over the company, or (ii) owns or controls at least 25% of the ownership interests in the company.
Questions will likely arise as to what constitutes “substantial control”. According to FinCEN, an individual exercises substantial control if it meets one of the following four criteria: (1) they are a senior officer of the reporting company; (2) they have the authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) they are an important decision-maker; or (4) they have any other form of substantial control over the reporting company.
It is also important to note that a beneficial owner can exercise substantial control directly or indirectly. Examples of indirect substantial control include: controlling one or more intermediary entities that separately or collectively exercise substantial control over a reporting company or through financial and/or business relationships. Additionally, a trustee of a trust or similar arrangement may exercise substantial control over a reporting company.
Exemptions
The CTA contains 23 different exemptions from the definition of “reporting company.” Any entities that qualify for an exemption are not required to submit BOI Reports to FinCEN. Some of the more notable exemptions include governmental authorities, banks, credit unions, brokers or dealers in securities, investment companies or investment advisers, pooled investment vehicles, and large operating companies.
Confidentiality
The beneficial ownership information that is reported to FinCEN will be stored in a secure, non-public database. FinCEN may permit access to this database to: federal agencies engaged in national security intelligence, or law enforcement activity; state, local, and Tribal law enforcement agencies with court authorization; officials at the Department of the Treasury; foreign law enforcement agencies, judges, prosecutors, and other authorities that properly submit a request through a U.S. federal agency for authorized activities related to national security, intelligence, and law enforcement; financial institutions with customer due diligence requirements under applicable law; and federal functional regulators or other appropriate regulatory agencies that supervise or assess financial institutions with access to beneficial ownership information.
Condos/Coops/HOAs
While applicability to condominiums, cooperative corporations, and homeowners associations is not explicitly provided for in the law, the CTA provides that any entity that is created by filing a document with a state’s secretary of state is required to report to FinCEN. Cooperative corporations are therefore deemed reporting companies, as they are required to file their certificates of incorporation with the NYS Department of State. Similarly, any homeowners association or condominium that is created or registered to do business in the U.S. by the filing of a document with a secretary of state or similar office, would be deemed a reporting company under the CTA.
New York LLC Transparency Act (the “NY LLC Act”)
Any LLC formed or registered to do business in New York must also prepare for compliance with the NY LLC Act beginning in 2026. LLCs formed in New York prior to January 1, 2026, will have until January 1, 2027 to file. LLCs formed in New York on or after January 1, 2026 will have thirty (30) days from the date of formation to file.
It is important to note that the NY LLC Act only applies to LLCs. Thus, corporations, limited liability partnerships, and other similar entities that are not LLCs, do not fall under the NY LLC Act’s purview.
Takeaway
With these deadlines looming, it is important for reporting companies to start identifying beneficial owners, ensuring all of their identifying documentation is up to date, and begin setting up procedures to monitor changes in ownership and/or control.
Contact Us
For assistance or questions about the CTA or NY LLC Act, please consult your attorney of record or reach out to our team here.
Written by: Joshua A. Sycoff, Associate, Transactional
Zachary Rozycki, Law Clerk, Transactional