Dear Client,
The following information was generously provided by Bourland, Wall & Wenzel a prestigious downtown Fort Worth law firm with whom we have worked closely for many years. The recent passing of the Corporate Transparency Act will require your attention in order to avoid potentially substantial penalties. Please review the following and let us know if you have any questions at all.
LEGISLATIVE ALERT: CORPORATE TRANSPARENCY ACT
Beginning January 1, 2024, pursuant to a federal law called the Corporate Transparency Act (“CTA”), certain types of entities (including corporations, limited liability companies, and limited partnerships) will need to report certain identifying information to a federal agency called the Financial Crimes Enforcement Network (or “FinCEN”), unless the entity qualifies for an exemption from the CTA reporting requirements. The purpose of the CTA is to aid the United States in combating money-laundering, the financing of terrorism, tax fraud, and other illicit activities that are carried out using anonymous shell companies.
Under the CTA, a “Reporting Company” must file a beneficial ownership information report (“BOI Report”) that contains specific identifying information about the Reporting Company and its “Beneficial Owners”. In addition, a Reporting Company formed on or after January 1, 2024 must include in its BOI Report specific identifying information about its “Company Applicants”.
For US entities¹ , a Reporting Company is an entity that was formed by filing a document with a secretary of state or other similar office under the laws of a US State or Indian Tribe and which does not qualify for an exemption under the CTA. Accordingly, a Reporting Company would include Texas entities such as corporations, limited liability companies, limited partnerships, professional associations, and professional corporations (unless such entity qualifies for an exemption under the CTA).
A Beneficial Owner is any individual who, directly or indirectly, either:
(1) exercises substantial control over the Reporting Company; OR
(2) owns or controls 25% or more of the ownership interests of the Reporting Company.
A Company Applicant is any individual who either:
(1) directly files the document that formed the Reporting Company; OR
(2 ) is primarily responsible for directing or controlling the filing of the document that formed the Reporting Company.
While there are various exemptions which exempt certain entities from being a Reporting Company and having to comply with the CTA reporting requirements, many of these exemptions only apply to entities which are already subject to a high degree of regulation or reporting (such as banks, publicly traded companies, tax-exempt entities, and insurance companies) OR companies that are “large operating companies” (as defined in the CTA). A list of these exemptions is attached to this communication.
Large operating companies must have: (1) more than 20 full-time employees in the United States, (2) an operating presence at a physical office in the United States, and (3) filed a federal income tax return in the prior year showing more than $5 million in gross receipts or sales (net of returns and allowances), excluding gross receipts or sales from sources outside the United States. Please note, to qualify as a large operating company, all three of the requirements listed above must be satisfied.
The deadline for a Reporting Company to file its initial BOI Report depends on when the Reporting Company was formed.
A Reporting Company formed before January 1, 2024, must file its initial BOI Report before January 1, 2025.
Generally speaking, a Reporting Company formed in 2024 must file its initial BOI Report within 90 days after the date of its formation.
Generally speaking, a Reporting Company formed in 2025 or after must file its initial BOI Report within 30 days after the date of its formation.
If an entity that previously qualified for an exemption from the reporting requirements of the CTA ceases to qualify for such exemption, then such entity must file its initial BOI Report with FinCEN within 30 days after the date on which such entity stopped qualifying for the exemption.
In addition to the initial BOI Report, a Reporting Company has a continuing obligation to update its BOI Report to reflect any changes to the information previously reported about the Reporting Company or its Beneficial Owners. Such updated BOI Report must be filed with FinCEN within 30 days after the change occurs.
The initial BOI Report and updates to the BOI Report are filed with FinCEN electronically through a secure filing system. The information submitted to FinCEN is not accessible to the public. Access to the information is generally limited to law enforcement agencies, financial institutions (if such financial institution obtains the consent of the Reporting Company), government agencies that regulate financial institutions, and the US Treasury Department.
Failure to comply with the CTA can result in civil fines and/or criminal actions. Accordingly, it is important to comply with the initial and continuing reporting requirements under the CTA.
This communication is for informational purposes only, and the information contained in this communication concerning the CTA is not exhaustive.
If you would like our firm’s assistance in complying with the reporting requirements of the CTA or have questions concerning the CTA, please feel free to contact us.
- Reporting Company Exemptions:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
¹The CTA also applies to foreign entities doing business in the United States. This communication does not address foreign entities doing business in the United States, but the same CTA principals generally apply to foreign entities doing business in the Unites States.
SFC LLP
200 E Front St., Suite 200, Arlington, Texas 76011
Phone 817.649.8083