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Alert-Corporate Transparency Act: New Filing Obligations for Companies Formed or Registered Within the United States

Alert - Corporate Transparency Act: New Filing Obligations for
Companies Formed or Registered Within the United States

This summary provides important information regarding a new filing obligation imposed upon a broad segment of companies organized, or registered to do business, within the United States. This new filing obligation is imposed under the Corporate Transparency Act and became effective on January 1, 2024.

This new reporting obligation generally applies to any entity that is formed, or registers to do business, by filing a document with a Secretary of State or any similar office under the law of any state or Indian tribe. Companies that are subject to this requirement must file with the U.S. government certain reports (“BOI Reports”) disclosing the persons who have beneficial ownership or control over those companies. The required timing for making the initial filing depends on when the company was formed, and failure to comply with this filing requirement can result in civil or criminal penalties. Below is a summary of the standards governing the applicability of the BOI Report filing requirement, the information that must be disclosed on a BOI Report, the required timing for filing a BOI Report, and the penalties that may be imposed for noncompliance.

The BOI Report filing requirement recently became effective, and there is limited time to comply with the filing requirement. As a result, it is important to determine quickly whether your company is subject to the BOI Report filing requirement.

This summary does not contain an exhaustive discussion of the standards relating to the BOI Report filing requirement and does not constitute legal advice that may be relied upon. As a result, each company must make its own determination regarding whether it is subject to the BOI Report filing requirement and, if so, the appropriate contents of its BOI Report. Additional information regarding the BOI Report filing obligation can be found on the website of the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) at: https://www.fincen.gov/boi.

If you would like assistance in determining (i) whether your company is subject to the BOI Report filing requirement or (ii) the appropriate contents of your company’s BOI Report, please contact Meadows Collier at: Contact | Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. - Attorneys at Law (meadowscollier.com), and we would be happy to assist you. Any agreement by Meadows Collier to provide legal advice in connection with the BOI Report filing requirement must be explicitly set forth in writing.


Who is Required to File a BOI Report?

Generally, any entity formed by filing a document with a Secretary of State or any similar office under the law of any state or Indian tribe is required to meet the BOI Report filing obligations to FinCEN. The new filing obligation also generally applies to any entity formed under the laws of a foreign jurisdiction that has registered to do business within any state or Indian tribe by making a filing with such state or Indian tribe.

There are, however, several exemptions from the BOI Report filing requirement. The potential exemptions include the following five categories. This summary does not discuss all the exemption categories and does not contain a detailed description of the standards applying to any particular exemption category, and thus each company must consult the FinCEN website for more information regarding whether that company is subject to the BOI Report filing obligation. The following, however, is a basic description of some of the more widely applicable available exemptions.

  1. Companies Subject to Federal Securities Laws. A company is exempt from the BOI Report filing requirement if it (i) has issued securities that are required to be registered under Section 12 of the Securities Exchange Act of 1934 or (ii) is required to file supplementary and periodic information under Section 15(d) of the Securities Exchange Act of 1934.
  2. Large Operating Companies. A company is exempt from the BOI Report filing requirement if it qualifies as a large operating company, which basically means that the company: (i) employs more than 20 full-time employees who are employed within the U.S.; (ii) has an operating presence at a physical office within the U.S.; and (iii) filed a U.S. income tax return for the previous year reporting more than $5 million in gross receipts or sales.
  3. Insurance Companies and Producers. A company is exempt if it satisfies the definition of an “insurance company” under specific provisions of federal law. In addition, a company is exempt if both the following apply: (i) the company is an insurance producer that is authorized by a state and is subject to regulation by a state insurance commissioner or the equivalent; and (ii) the company has an operating presence at a physical office within the U.S.
  4. Tax Exempt Organizations. A company is exempt if it is described as a tax exempt organization under I.R.C. § 501(c)(3) or a political organization under I.R.C. § 527.
  5. Inactive Companies. A company is exempt if it is an inactive company, which basically means that it: (i) was in existence before January 1, 2020; (ii) is not engaged in an active trade or business; (ii) is not owned by a foreign person; (iii) was not the subject of an ownership change during the prior 12 months; (iv) did not receive receipts of more than $1,000 during the preceding 12 months; and (v) does not otherwise hold any assets.

When is a BOI Report Due for Filing?

The timing of when the initial BOI Report must be filed depends on when the reporting company was formed. This differs based on three categories.

  1. Entities Formed in 2024. A reporting company created or registered to do business in the U.S. on or after January 1, 2024 and before January 1, 2025, must file its initial BOI Report within 90 calendar days following the earlier of the date on which: (i) that reporting company receives actual notice that its creation or registration is effective; or (ii) the Secretary of State or similar office first provides public notice of that company’s creation or registration.
  2. Entities Formed Before 2024. A reporting company created or registered to do business in the U.S. before January 1, 2024 must file its initial BOI Report by no later than January 1, 2025.
  3. Entities Formed After 2024. A reporting company created or registered to do business in the U.S. on or after January 1, 2025 must file its initial BOI Report within 30 calendar days following the earlier of the date on which: (i) that reporting company receives actual notice that its creation or registration is effective; or (ii) the Secretary of State or similar office first provides public notice of that company’s creation or registration.
In addition, if any of the information required to be reported on the BOI Report changes following the filing of the BOI Report, the company must file an updated BOI Report within 30 days following the date on which the change occurred. The events that cause an obligation to file an updated BOI Report include, but are not limited to: (i) a change in the beneficial ownership of the reporting company; or (ii) a change in the name, address, or identifying number of a beneficial owner that was included on the original BOI Report.

Lastly, if a company learns that its filed BOI Report contained incorrect information, the company must file a corrected BOI Report within 30 days following the date on which the company learned, or had reason to know, of the inaccuracy. If the company corrects its BOI Report within 90 days of when the incorrect BOI Report was filed, the company is not subject to any penalty in connection with filing the incorrect BOI Report.


What Penalties Apply to Noncompliance?

If a company is determined to have willfully failed to correctly file its BOI Report, that failure can result in (i) civil penalties of up to $500 for each day that the violation continues or (ii) criminal penalties, including imprisonment of up to 2 years and/or a fine of up to $10,000. Senior officers of a company that fails to file a BOI Report may be held personally responsible for that failure. In addition, if a beneficial owner causes a company to file an incorrect BOI Report (by, for example, refusing to provide information that the beneficial owner knows is required to be disclosed on the BOI Report), that beneficial owner may be subject to civil and/or criminal penalties.


Who Receives the Filing?

A BOI Report must be filed electronically with FinCEN. FinCEN maintains that it “will store BOI reports in a centralized database and only share this information with authorized users for purposes specified by law. The database will use rigorous information security methods and controls typically used in the federal government to protect non-classified yet sensitive information systems at the highest security level.”


What Information Must be Disclosed?

A BOI Report generally must contain certain information about a reporting company’s “beneficial owners” and “company applicants.” A “Beneficial Owner,” for this purpose, is any individual who, directly or indirectly: (i) exercises substantial control over a reporting company; or (ii) owns or controls at least 25% of the ownership interests of a reporting company. An individual exercises “substantial control” over a reporting company if that individual satisfies one or more of the following factors: (i) the individual is a senior officer of the reporting company; (ii) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; or (iii) the individual is an important decision-maker for the reporting company. The rules also contain a “catch all” category through which an individual will be considered as exercising substantial control if that individual has “any other form” of substantial control over the reporting company. The rules do not presently elaborate regarding what constitutes “any other form” of substantial control.

For purposes of the 25% ownership threshold, an “ownership interest” in the reporting company includes any of the following: equity, stock, or voting rights; a capital or profit interest; convertible instruments; and options or other non-binding privileges to buy or sell any of the foregoing. Here again, the rules contain a “catch all” category through which an ownership interest is considered as including “any other instrument, contract, or other mechanism used to establish ownership.”

Certain persons are excluded in determining the “beneficial owners” of a reporting company. These persons include: (i) a minor child; (ii) a nominee, intermediary, custodian, or agent; (iii) certain non-senior officer employees of the reporting company; (iv) a person whose only interest in the reporting company is a future interest through right of inheritance; and (v) creditors.

A reporting company can have more than one Beneficial Owner. FinCEN has expressed that it expects every reporting company will be substantially controlled by one or more individuals and that each reporting company will therefore be able to identify and report at least one Beneficial Owner.

A “company applicant” includes any individual who is the “direct filer,” or who “directs and controls the filing action,” of the reporting company’s formation or registration document. The “direct filer,” for this purpose, is the individual who directly filed the document that created a domestic reporting company or first registered a foreign reporting company. The “direct filer” is the individual who would have actually physically or electronically filed the formation or registration document with the Secretary of State or similar office.

A reporting company is required to disclose information regarding its “company applicants” only if the reporting company was created or registered in the U.S. on or after January 1, 2024. If a reporting company is subject to the disclosure requirements relating to “company applicants,” FinCEN has stated that the reporting company must identify and report at least one, and not more than two, individuals as its “company applicants.”

The BOI E-filing System is now live and accepting both PDF and online BOI Reports. The BOI E-Filing System can be accessed at: BOI E-FILING (fincen.gov).

Hopefully, this summary provides a useful high-level description of the BOI Report filing obligation that has recently come into effect. If you would like to discuss whether the BOI Report filing obligation applies in your specific circumstance or what information must be included on your BOI Report, please contact us at: Contact | Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. - Attorneys at Law (meadowscollier.com).