The U.S. Corporate Transparency Act went into effect this January—and firms with U.S. operations must comply or face severe penalties.
Traditionally, the United States government has taken a privacy-centric approach to corporate ownership and management. Until recently, there was no easy way for the government to determine who owns a company.
The U.S. Congress ultimately decided this outlook allowed too much money laundering and criminal concealment, and the Corporate Transparency Act (“CTA”) became law.
Under the CTA, if a company registers to do business in the United States on or after January 1, 2024, there is an obligation to file a Beneficial Owner Information Report (“BOIR”) within 90 days after the registration is effective. For any entity so registered prior to January 1, 2024, the BOIR is due December 31, 2024. Failure to file the BOIR will result in fines of up to $10,000, plus up to two years in prison.
The BOIR contains information about all people who own at least 25% of the entity (with a broad definition of what it means to own) or who exercise substantial control over the entity (i.e., senior officers, managers, and the like). From each of these “beneficial owners,” a copy of each beneficial owner’s passport will be submitted with the BOIR. The BOIR must also disclose the people who submitted the registration (i.e., “company applicants”) if registration occurred on or after January 1, 2024. This could be a lawyer and/or paralegal.
BOIRs are filed electronically through the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). One positive aspect of CTA is that BOIRs are not released publicly. They are available to law enforcement and taxing authorities.
There are exemptions, both for companies and beneficial owners. Most notably, a “large operating company” (which requires >20 employees, a physical office in the United States, and >$5 million in revenue) is exempt. With respect to beneficial owners, minor children, inheritors, creditors, and custodians are exempt.
For example, London-based recruitment company Big Ben Ltd. registers to do business in the U.S. state of Texas on December 29, 2023. The BOIR is due December 31, 2024. If, on the other hand, that registration was instead effective on January 4, 2024, then the BOIR would be due April 3, 2024 (90 days after registration). Suppose that Big Ben Ltd. is owned by Barack Trump (80%) and George W. Biden (20%) and managed by Abraham Clinton. Trump would be a beneficial owner based on his ownership of more than 25%, and Clinton would be a beneficial owner based on his management position. If Clinton engaged the Cleveland law firm of Cavitch via its lawyer Michael Rasor and paralegal Rachel Zane, then both Rasor and Zane would be company applicants.
The federal government estimates a cost of $2,000 per entity where the structure is complex; for most entities, the compliance cost will not exceed $500. The biggest risk of CTA is ignoring it altogether.
If you have questions regarding the Corporate Transparency Act contact Mike Rasor at 216-621-7860.