What is the CTA?
We are reaching out to inform you about recently effective federal legislation, commonly known as the Corporate Transparency Act (“CTA”), that likely affects your business. Congress enacted the CTA to combat financial crimes and enhance transparency in corporate ownership. The CTA focuses on small and midsized corporations, limited liability companies, and other similar entities (referred to as “Reporting Companies”) and their owners.
What is Required?
Effective January 1, 2024, unless one of the limited exceptions applies, all Reporting Companies must submit to the U.S Department of Treasury’s Financial Crimes Enforcement Network a report detailing the Reporting Company’s “Beneficial Ownership” information (including driver’s licenses) (“BOI”). Beneficial Ownership is defined broadly to include not only those who directly or indirectly own 25% or more of the Reporting Company, but also those with “substantial control” over the Reporting Company, including its directors, managers, senior officers, among others. Entities exempt from CTA reporting can be found here: https://www.fincen.gov/boi-faqs. The CTA provides various exemptions from filing BOI report. The most common exemptions apply to large operating companies and tax-exempt entities. Large operating companies are exempt from filing if they have more than 20 full time employees in the United States and reported more than $5 Million of gross revenue on its most recent Federal income tax return. Certain tax-exempt entities, such as Section 501(c) charities and foundations, are also exempt from filing BOI reports. Your Stark & Knoll attorney can assist with determining whether your entity qualifies for an exemption.
When are Reports Due?
Reporting Companies in existence prior to January 1, 2024, must submit the initial BOI report no later than December 31, 2024. Any Reporting Company formed on or after January 1, 2024, but before January 1, 2025, must file its initial BOI report within 90 days after its formation. Any Reporting Company formed on or after January 1, 2025, must file its initial BOI report within 30 days after its formation. If any information contained in a submitted BOI report changes or is discovered to be inaccurate, you must submit an updated or corrective BOI report within 30 days after the change or discovery of the inaccuracy.
What are the Consequences for Non-Compliance?
Failure to comply with the CTA’s reporting requirements carries significant fines and penalties of up to $500 per day for each day of non-compliance. The willful failure to report, or willfully providing false or fraudulent Beneficial Ownership information may also result in criminal sanctions of up to two years in prison and/or a fine of up to $10,000. Consequences for failing to file an updated or corrective report within 30 days after any change or discovery of inaccuracy also carries the penalty of up to $500 per day for each day of non-compliance.
How Stark & Knoll Can Assist?
If engaged to do so, Stark & Knoll can assist you in a variety of ways with your CTA compliance:
- Assessment of Reporting Obligations: We can assist you in determining if your entity meets the definition of a Reporting Company, or if it qualifies for one of the limited exemptions. We can also review your entity's structure and ownership to assess and explain its reporting requirements.
- Compliance: We can guide you through the compliance process, outlining the necessary steps to fulfill yourreporting obligations. For Reporting Companies with two or fewer owners, Stark & Knoll will assist you in filingyour initial BOI report for a flat fee of $250, and $500 for Reporting Companies with more owners. However, thesefees will double after November 15, 2024.
- Dissolution Assistance: If you own or control an entity that is no longer active, it is still possible that the entity issubject to the CTA’s reporting requirements. With the implementation of the CTA, inactive companies now pose agreater risk to their owners. As such, it is more important than ever to formally dissolve any inactive entities. Whilerecent guidance from FinCEN has determined that entities who are Reporting Companies prior to January 1, 2025,are not absolved from BOI filing requirements if dissolved prior to January 1, 2025, dissolution is nonethelessrecommended to avoid update requirements and continuing compliance. If you are interested in dissolving yourinactive companies for CTA purposes, or for any other reason, we offer comprehensive and efficient dissolutionservices. Stark & Knoll can assist you in drafting the appropriate dissolution documentation and making requiredsecretary of state filings. Stark & Knoll will dissolve LLCs for a flat fee of $750 (plus any required state filing feesand other third-party expenses) and corporations for a flat fee of $1,500 (plus any required state filing fees and otherthird-party expenses). These costs do not include any CTA filings which are still required for entities dissolvedafter January 1, 2024.
We encourage you to proactively address your entity's CTA compliance to avoid potential penalties and legal consequences. Stark & Knoll is committed to assisting you in navigating regulatory requirements and safeguarding your business interests. We look forward to the opportunity to support you with the Corporate Transparency Act’s regulatory requirements and ensuring the continued success of your business endeavors. Unless specifically engaged to do so, (1) assisting you or your entities with CTA compliance, including initial BOI reporting, and any required updated or corrective BOI reporting, is not within the scope of your engagement with Stark & Knoll; (2) you and your entities are solely and exclusively responsible for the entities’ compliance with the CTA; and (3) Stark & Knoll shall have no responsibility or liability resulting from your and/or your entities’ failure to comply with the CTA. Stark & Knoll has also developed a short checklist (“CTA Checklist”), which can be downloaded, and completed by you and returned to Stark & Knoll via the Secure Document Portal or via email to CTACompliance@stark-knoll.com, and will allow us to complete and file your initial BOI report. To discuss CTA compliance or the Stark & Knoll CTA checklist, please contact your Stark & Knoll attorney, or the authors of this Client Advisory, Tanner J. Odle (todle@stark-knoll.com) and Donald R. Scherer (dscherer@stark-knoll.com).