The Corporate Transparency Act

Starting January 1, 2024, the Corporate Transparency Act (CTA) requires many companies to disclose information about their beneficial owners by filing a Beneficial Owner Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. The goal of BOIRs is to increase transparency and combat illegal activities like money laundering through shell companies. Accordingly, failure to properly file a BOIR may incur severe civil and criminal penalties, including fines up to $100,000 and up to two years of prison time. While this may be a positive step for the economy, we understand it adds another item to your end-of-year to do list. To assist you, here are the key points you need to know.

Does This Affect Your Company?

If your company is a corporation, LLC, or any entity created by filing paperwork with a state office (like the Secretary of State), this likely applies to you. Here’s who needs to file:

• Domestic Report Companies: Businesses formed in the

• U.S. Foreign Reporting Companies: Businesses formed abroad but registered to do business in the U.S.

Key Deadlines:

• Entities formed before January 1, 2024: File your BOIR by January 1, 2025

• Entities formed between January 1, 2024 and December 31, 2024: You have 90 days from formation to file your BOIR

• Entities formed on or after January 1, 2025: File your BOIR within 30 days of formation.

There are 23 types of entities that are exempt. Below is the list for you to review.

On July 8th, 2024, FinCEN clarified that even if a Reporting Company dissolves or terminates before its initial BOIR is due, it must still file the initial BOIR. So who does this affect?

• Companies That Ceased to Exist Before January 1, 2024: If your company was formally and irrevocable dissolved before January 1, 2024, and no longer exists as a legal entity, you are not required file a BOIR with FinCEN.

• Companies Formed Before January 1, 2024: If your company was dissolved before the January 1, 2025 deadline, you’re still required to file the initial BOIR.

• Companies Formed in 2024: Even if you dissolved your company before the 90-day reporting deadline, you must file the initial BOIR. This includes temporary entities like merger subsidiaries.

After filing the initial BOIR, you don’t need to file an updated report to notify FinCEN of the dissolution.

WHO IS A BENEFICIAL OWNER?

The general rule is that an individual who, directly or indirectly, exercises “Substantial Control” over a Reporting Company or owns or controls at least 25% of ownership interest of a Reporting Company is considered a Beneficial Owner.

To establish 25% ownership interest, it’s important to understand what counts. It can include equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other nonbinding privileges to buy or sell any of the previously mentioned types of interests; or any other instrument, control or other mechanism used to establish ownership.

To establish “Substantial Control” these are factors to consider:

• Senior Officer (President, CEO, COO, CFO, General Counsel or any other officer, regardless of official title, who performs similar functions)

• Appointment or Removal Authority (of a Senior Officer or majority of Board of Directors)

• Important Decision-Maker (over decisions such as business, finances, structure)

Here’s the information you’ll need to provide in the BOIR for each Beneficial Owner:

• Full legal name

• Date of birth

• Current residential street address

• A non-expired identification document (U.S. passport, foreign passport, State drivers license, other identification documents issued by state or local agency)

Note: Companies and individuals can submit their identification information to FinCEN to obtain a unique FinCEN identifier. This number can be used on the BOIR in place of detailed identification information, which is especially convenient for beneficial owners of multiple reporting companies.

Closing Out 2024

With the Corporate Transparancy Act’s new reporting requirments coming into effect, it’s a timely reminder of the importance of keeping all of your company’s governing documents up to date. Now is the perfect time to:

• Check for inactive entities to avoid unecessary compliance obligations

• Secure important name reservations and renewals

• Confirm good standing status so planned deals are ready to go in 2025

• Prepare and review Minutes from Annual Meetings

• Review all corporate resolutions

• Prepare any amendments to Bylaws, Operating Agreements, Partnership Agreements and Shareholder Agreements

Keeping these documents current is crucial for compliance and can help prevent future complications. However, we understand that this may feel overwhelming, but you don’t have to navigate it alone. We’re here to help:

• Guide You Through the CTA Requirements: We’ll help you understand what the new law means for your business and whether or not you’re exempt.

• Assist with BOI Report Filing: We’ll ensure your report is accurate and submitted on time.

• Prepare Your Annual Meeting Minutes and Related Documents: We’ll help you draft and finalize your annual meeting minutes, resolutions, and any other necessary documents.

• Update Your Governing Documents: We’ll review and update your corporate documents to ensure everything is in compliance.

Let's Connect

We value our relationship with you and want to make the transition into 2025 as smooth as possible. If you have any questions, concerns or just want to have a friendly chat, please reach out to your usual contact at our firm or give us a call at 817.338.4500.

Thank you for choosing Cotten Schmidt as your legal advisors. We look forward to connecting with you soon.