Small Business Alert – FinCEN Series #1 | Understanding the Corporate Transparency Act: What Every Small Business Needs to Know

March 1, 2024

The Corporate Transparency Act (CTA) is a significant piece of legislation that affects millions of small businesses in the United States since it came into effect on January 1, 2024. As a small business owner, it’s essential to understand the intricacies of this act and its potential implications for your business operations. In this blog post, we’ll delve into the key aspects of the Corporate Transparency Act and what it means for small businesses.

What is the Corporate Transparency Act?

Enacted in 2021, the Corporate Transparency Act aims to combat illicit activities such as tax fraud, money laundering, and terrorism financing by increasing transparency around the ownership of certain U.S. businesses. Under this legislation, qualifying businesses are required to submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

Is Your Business a Reporting Company?

Corporations, limited liability companies or any other entity formed by the filing of a document with the Secretary of State is a “reporting company”. Reporting companies also include foreign entities registered to do business in any state.

Is Your Business Subject to or Exempt from FinCEN compliance?

There are 23 exemptions from compliance with FinCEN. Most exemptions are for businesses that are already highly regulated such as government agencies, banks, credit unions, tax exempt entities, insurance companies, public utilities, accounting firms and large operating companies. 

Who is Considered a Beneficial Owner?

According to the Corporate Transparency Act, an individual qualifies as a beneficial owner if they directly or indirectly hold a significant ownership stake in a company. This is not just equity shareholders or members and can include individuals who have a major influence on the company’s decisions or operations, own at least 25% of the company’s shares, or have substantial control over the company’s equity. 

What Information Must be Reported?

Reporting companies must provide detailed information about their beneficial owners in the BOI Report. This includes the owners’ names, addresses, birthdays, identification numbers (such as a license or passport number), and the jurisdiction of the documents. Additionally, reporting companies must provide their legal name, trademarks, current U.S. address, taxpayer identification number, and the jurisdiction where they were formed or registered.

Reporting Process and Deadlines

Beginning January 1, 2024, reporting companies will have a limited time to file their initial BOI reports. The filing deadline varies depending on the establishment date of the business, with different deadlines for businesses established before January 1, 2024, and those established afterward. Domestic reporting companies, including LLCs, corporations, and other entities, as well as foreign reporting companies registered to conduct business in the United States, are required to submit BOI reports.

If you do an ownership interest transfer after January 1, 2024, you have 90 days to file your BOI report. Remember, ownership interest is more broad than just shareholders of corporations and LLC members, and can include board members or officers. 

Seeking Assistance with Compliance from the Lawvex Team

The CTA and FinCEN compliance penalties of $591 per day and potential criminal liability for both the business entity AND a company applicant, such as Lawvex, who reports on a business entity’s behalf makes this a watershed event both for small business entities and for law firms or anyone else who wants to take on the risk and liability of FinCEN compliance. 

Many solo lawyers, law firms and even CPAs or legal documents assistants who previously “dabbled” in forming a corporation, LLC or maintaining it by preparing minutes are rapidly exiting these services because the complexity has increased and the risk is now too high for them to be involved.   

At Lawvex, we have formed and counseled our clients on formation of over 400 business entities, we currently have over 100 business entities that we maintained for our clients as corporate counsel and we have represented our corporate clients on thousands of transactions since we branded as Lawvex 10 years ago in 2014. 

We have made the strategic commitment to our small business clients to continue to serve them including providing expert FinCEN compliance. This means we have worked hard over the past year to deepen our expertise and review and update our internal processes and training requirements so that now:

  • Every attorney and paralegal on our team that provides business entity services is specifically trained on FinCEN compliance;
  • BOI data is stored and maintained consistently and securely with adequate protections from cyberattacks; and
  • Robust notice and calendaring is in place should an unexpected transfer of a beneficial ownership interest take place such as when a shareholder, member, or trustee of a trust that is a shareholder or member becomes incapacitated or dies.

Beginning in 2024, we are combining our previously separate formation, maintenance and transactional services all under our “Lawvex Team” service brand for business entities. Going forward, Lawvex will require all of its small business entity clients to adhere to strict protocols for formalities concerning:

  • Chain of title of the ownership interests, so that there is clarity about who must provide BOI;
  • Transfers of ownership interests and changes of officers or board members, again so that there is clarity about who must provide BOI and being prepared to report transfers and changes within relatively short time periods (90 days and eventually 30 days);
  • Maintenance of business entity records, including the cap table, including now BOI private information such as copies of photo identification, social security numbers and more, so that record keeping is secure and kept current; and
  • Enforcement mechanisms to involuntarily remove an ownership interest when they fail to provide their data timely. 

Schedule Your Free 30 minute FinCEN Introductory Call with Lawvex Today.

Our meeting will be a brief conversation that explains what FinCEN reporting is and provides an initial analysis of whether your business entity is a reporting company and who are the likely beneficial owners that must report. Then we will discuss next steps and how you can get our help to get in compliance right away. 

The liability associated with FinCEN reporting is too high – large daily fines, and potential criminal penalties. The FinCEN Introductory Call is a free service and there are deadlines for reporting so please schedule as soon as possible. Call 888.308.7003 and ask for a “FinCEN Introductory Call”.