The Feds and Your Family Business
Companies formed by registering with a government agency like the Arizona Corporation Commission or the secretaries of state of states other than Arizona, with certain exceptions, are “Reporting Companies” that are required to supply information about their owners, controlling persons and the persons or entities that participated in the formation of those companies, to a federal agency, the Financial Crimes Enforcement Network (FinCEN) that will operate a secure electronic database (the Beneficial Ownership Secure System or “BOSS”) accessible only by federal and state law-enforcement agencies.
Violations of the CTA include a failure to file the required report or knowingly including false or fraudulent information in it. A civil penalty of $500 per day may be imposed for each day that a person continues a violation until it is remedied. A criminal fine of up to $10,000 and/or imprisonment of up to two years may also be imposed.
Domestic Reporting Companies formed after December 31, 2023 must supply beneficial ownership information (“BOI”) to FinCEN within 30 days after it or the public receives notice that it has been created or registered from the government agency with which it filed the document that created it like articles of incorporation or articles of organization. Domestic Reporting Companies formed before January 1, 2024 must supply that information to FinCEN before January 1, 2025. But “Large Operating Companies” that have a physical, operating presence in the US, at least 20 full-time employees, and $5,000,000 in gross revenue as shown by its prior year’s tax return, non-profits described in Section 501(a) of the Internal Revenue Code, certain public accounting firms, publicly traded companies, FDIC-insured banks and other entities that already are required to disclose information to the federal government are exempt from the disclosure requirements of the CTA.
Owners who must disclose include persons who exercise substantial control over a Reporting Company regardless of actual ownership or who own 25% or more of the ownership interest of the company. Senior officers of a company, such as the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or President, are deemed to have substantial control over the Reporting Company. Any individual with power to remove any of those officers or a majority of a company’s board of directors or has substantial influence over important decisions is also subject to the disclosure requirements of the CTA.
A “Company Applicant” is also subject to the CTA’s disclosure requirements but only with respect to companies formed after December 31, 2023. Company Applicants include any individual who files the document creating the company with an Applicable Agency like the Arizona Corporation Commission or a Secretary of State. Thus, an “organizer” of a limited liability company or an attorney who acts as an authorized agent or incorporator of a corporation and prepares and submits its articles of incorporation are Company Applicants.
What must be reported?
Regarding the Reporting Company:
The full legal name of the Reporting Company and any dba or tradename.
The street address of its principal place of business.
The state, territory, or tribal jurisdiction of its registration (formation or organization).
Its tax or employee identification number.
Regarding the beneficial owners including controlling persons and “Company Applicants”:
Full legal name and date of birth.
Residential street address.
If the Company Applicant is an entity that regularly forms business entities in the ordinary course of its business, its business street address.
For an individual an official identifying number from a non-expired US Passport, driver’s license issued by a state, or identification card issued by a state, local government, or Indian tribe.
An image of the identifying document from which the identifying number was taken.
Individuals may also obtain a unique FinCEN identification number to be used in future disclosures in place of the above information.
Though a proposed form has been issued, the final version is yet to be promulgated. The filing will be online, though a request for paper filing for companies unable to file electronically has been submitted to FinCEN, but it has not yet acted on it. Law firms, as well as individuals who regularly form companies, should obtain that FinCEN Identifier as soon as the forms become available. Also be mindful that fraudsters may pose as companies that will assist in filing the required report when their actual purpose is to obtain personal information to facilitate identity theft. As is often the case, vigilance and healthy skepticism can be the best defense.
This letter is intended only as a summary of, and only touches the surface of, the CTA and regulations under it. The statute’s and regulations’ requirements and exemptions are highly technical, and there is no substitute for sound legal advice and fulfilling the requirements of the statute and regulations with all deliberate speed. We at Hymson Goldstein Pantiliat & Lohr are happy to help.
The information contained herein is general information not legal advice. E-mailing attorneys from this website does NOT establish an attorney/client relationship. A formal attorney/client relationship begins after a conflicts check and engagement agreement are signed.
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