NEW FEDERAL REPORTING REQUIREMENTS
FOR BUSINESSES
December 2023
FOURTH IN A SERIES

How to Ensure your Business is Complying

INTRODUCTION

We are writing to advise you of a new regulation enacted under the federal Corporate Transparency Act (CTA) that, for the first time, will require disclosure of information about all corporations, limited liability companies and limited partnerships (unless exempt) and personal information about their beneficial owners as well as personal information about the persons who form those entities. This requirement is effective on January 1, 2024 for all such entities unless otherwise exempt by regulation.

Murray Plumb & Murray (MPM) can assist you with the determination of which of your entities are subject to this new regulation and which may be exempt. We can also assist you in making the necessary filings when and if required. The final rules and forms have not been developed, so we at MPM are providing you with the information we know now and will continue to update you as new information becomes available.

Set forth below is a summary of the CTA regulation, the types of entities that are exempt and the filing requirements:

DISCUSSION

The regulation, issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) under the CTA, requires all entities created or registered by the filing of a document with the secretary of state to disclose to FinCEN certain information about the entity (called a “Reporting Company”), personal information about certain owners of the Reporting Company (called the “Beneficial Owners”) and personal information about the persons that file the formation document with the secretary of state to form the Reporting Company (called the “Company Applicant”). Starting January 1, 2024, all corporations, limited liability companies and limited partnerships will be required to file this information with FinCEN unless exempt. As explained in more detail below, the requirements for existing entities, created before January 1, 2024 differ slightly from the requirements for new entities, created on or after January 1, 2024. This new regulation will create a centralized database of information about Reporting Companies and their Beneficial Owners for the purpose of combating money laundering, terrorist financing and other illicit activity, and to promote national security.

A Beneficial Owner of a Reporting Company whose information must be reported to FinCEN is any individual who directly or indirectly either exercises substantial control over the Reporting Company, or owns or controls at least 25% of the ownership interests of the Reporting Company. All members of the Board of Directors or Board of Managers and the Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer and General Counsel of a Reporting Company will likely be required to report to FinCEN as a Beneficial Owner. The regulation defines these individuals as having substantial control over a Reporting Company.

The regulation contains 23 exemptions. The exemptions generally relate to entities that are already subject to governmental regulation regarding beneficial ownership, including banks, credit unions, insurance companies, securities reporting issuers, registered securities broker dealers, registered investment advisors, and registered investment companies. Below are other notable exemptions:

1. Large operating companies, defined as any entity that:
   1. Employs more than 20 full-time employees in the United States;
   2. Has an operating presence at a physical office in the United States; and
   3. Filed a U.S. federal income tax return for the previous year showing more than $5,000,000 in gross receipts or sales, excluding gross receipts or sales from sources outside of the United States.

1. Inactive entities, defined as any entity that:
   1. Existed on or before January 1, 2020;
   2. Is not engaged in active business;
   3. Is not owned by a foreign person, whether directly or indirectly, wholly or partially;
   4. Has not experienced any change in ownership in the preceding 12 month period;
   5. Has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12 month period; and
   6. Does not otherwise hold any kind or type of assets, whether in the United States or abroad, including ownership interest in any corporation, limited liability company, or similar entity.

• Subsidiaries (but not parents) of exempt entities, defined as any entity whose ownership interests are controlled or wholly owner, directly or indirectly, by one or more exempt entities, except those controlled or owned by the following exempt entities:
  1. Money service businesses;
  2. Pooled investment vehicles;
  3. Entities assisting tax-exempt entities; and
  4. Inactive entities.

FinCEN is in the process of promulgating a regulation that sets forth who may access the information provided to FinCEN, and how recipients may use the information.

Existing Entities. Any Reporting Company created before January 1, 2024 must report the following information to FinCEN by December 31, 2024:

1. Reporting Company Information

1. Full legal name and any trade names or d/b/a names;

1. S. street address of the principal place of business or primary location where business is conducted;

1. Jurisdiction of formation or, for a foreign entity, where the entity was first registered; and

1. Taxpayer Identification Number/Employer Identification Number or, where a foreign Reporting Company has not been issued a Taxpayer Identification Number, a tax identification number issued by a foreign jurisdiction.

1. Beneficiation Owners’ Information

1. Full legal name;

1. Date of birth;

1. Residential street address; and

1. Unique identifying number from a passport, driver’s license, or other identification document issued by a government and an image of the document from which the identifying number is obtained.

New Entities. Any entity that is created on or after January 1, 2024 must report, within 90 days of creating the entity, the information set forth above for Reporting Companies and Beneficial Owners as well as information regarding Company Applicants.

Company Applicants. Company Applicants are defined as (1) the individual who directly files the formation documents with the secretary of state (i.e. attorneys or paralegals) and (2) the individual primarily responsible for directing or controlling the filing if more than one individual is involved in filing the document (i.e. attorneys, clients or client representatives). Each individual who is a Company Applicant must report the above information required for Beneficial Owners.

Changes in Reported Information. If any of the above information reported to FinCEN changes with respect to a Reporting Company or Beneficial Owner (but not a Company Applicant), then the Reporting Company must file an updated report with FinCEN within 30 days of the change. This requirement creates an obligation on the Reporting Company and its Beneficial Owners to carefully monitor changes in such information.

Penalties. Failure to report the required information or providing false or fraudulent information to FinCEN is unlawful. Willful violations can result in civil penalties of up to $500 per day for any violation that has not been remedied and criminal penalties of up to $10,000 and/or two years in prison.

Reporting Process. The required information will be submitted to FinCEN through a secure filing system available on FinCEN’s website. The filing system is currently being developed and FinCEN has repeatedly stated that it will be available by January 1, 2024.

Actions to be Taken. Businesses can take the following steps now to be prepared to be in compliance:

• Designate a person within the business whose responsibility it is to ensure compliance with the FinCEN reporting requirements.
• Review materials listed below for more information.
• Enlist professional help if needed to ensure that the reports are properly and timely submitted.

We are following the latest developments and will be prepared to answer your questions.

For more information, please visit the following:

Frequently Asked Questions: https://www.fincen.gov/boi-faqs

Small Entity Compliance Guide: https://www.fincen.gov/boi/small-entity-compliance-guide

FinCEN’s Beneficial Owners Information Webpage: https://www.fincen.gov/boi