As promised and also from our first training session of 2024, we discussed the new reporting requirement for 2024 from the Corporate Transparency Act (“CTA”) also known as Beneficial Ownership Information reporting (“BOI”). Here are the highlights along with some interesting recent court developments.
The U. S. Government entity in charge of this reporting is the Financial Crimes Enforcement Network (“FinCEN”) and its website is https://www.fincen.gov/.
Who has to report:
Your company may need to report information about its beneficial owners if it is:
- a corporation, a limited liability company (LLC), or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state
or Indian tribe;
or
- a foreign company registered to do business in any U.S. state or Indian tribe by such a filing.
This covers a lot of entities, but there are some exclusions and exempted entities including:
publicly traded companies,
nonprofits,
and
certain large operating companies.
In total there are twenty-three types of entities that are exempt from beneficial ownership information reporting requirements, so it might be worth your while to check with us here at Murdock Martell to see if your entity might be one of them.
How Do You Report?
Reporting companies report beneficial ownership information electronically through FinCEN’s website: www.fincen.gov/boi. The system provides a confirmation of receipt once a completed report is filed with FinCEN.
When Do You Report?
FinCEN began accepting reports on January 1, 2024. While at first glance the reporting deadlines may appear generous, upon closer inspection, some reporting deadlines are extremely challenging.
- If your company was created or registered prior to January 1, 2024, you will have until January 1, 2025 to report BOI.
Fair enough, that seems reasonable.
- If your company is created or registered in 2024, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier.
So if your new entity was formed this year, the 90 deadline could be imminent or could have already passed.
- If your company is created or registered on or after January 1, 2025, you must file BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
Much tighter deadline.
- Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 days.
Can be tricky. One example of note is someone who may inherit shares in a reporting entity by attaining a certain age or perhaps from a decedent’s will. 30 days is an extremely tight deadline for the event to happen, the entity to be notified, the Cap table to be updated, and the update to be filed.
From our firm’s training, we know that being “issue aware” is vital, and our clients, their attorneys and we must be diligent in tracking changes in the equity structure (the Cap table)!
Update:
Wouldn’t you know it, there has been recent litigation around this new reporting requirement. According to Kiplinger, on March 1, the U.S. District Court for the Northern District of Alabama ruled that the CTA is unconstitutional. The CTA is complicated as it applies to both direct ownership and to “beneficial ownership.” The plaintiffs in the Alabama case are members of the National Small Business Association (NSBA). The ruling would appear directly applicable to the members of the NSBA who were members at the time of the ruling. Other parties specified in the law are still obligated to report under the CTA. The ultimate resolution will come as the federal government appeals or the law is amended.
Stay tuned for future updates!