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⚖️ Corporate Transparency Act: Compliance and Updates

Key Deadlines, Recent Developments, and Steps to Prepare for CTA Reporting

Happy Friday, Funds Family!

Hope you had a wonderful Christmas and are enjoying the holiday season. 🎄 

We were going to take this week off…but unexpected legal excitement compels us to give you an update.

Today, we’re unpacking all the recent legal drama around the Corporate Transparency Act. We also have a video explaining how to make the filings (if you haven’t yet).

Let’s dive in!

🚨 Absurd Last-Minute Note as of Thursday Night (Dec 26): In a flip-flopping extravaganza, it appears that enforcement of the CTA might actually be on pause…again. We’ll monitor the developments. If I were you, I would just do the stupid filings and move on with your life (not legal advice).

📜 What is the Corporate Transparency Act?

First, a bit of background.

Enacted on January 1, 2024, the Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act of 2020. Its primary goal is to combat the use of anonymous shell companies for illegal activities like money laundering and tax evasion.

The CTA requires certain domestic and foreign entities to report certain 🔗beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).

The reporting deadline for most companies is now January 13, 2025 (previously January 1, 2025—more on this below).

But first…

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Thanks for reading, now we are ready to dive into the article 😃 

🏢 Who Needs to Comply?

The CTA applies to “reporting companies, " including most new legal entities formed or registered in the U.S. (e.g., corporations, LLCs, limited partnerships, and so on). Additionally, entities formed under foreign law but registered to do business in the U.S. must comply.

There are various 🔗exemptions from needing to register, but most fund, GP, and management company entities must register (unless the fund entities are registered - not exempt - from laws like the Investment Company Act and the Investment Advisers Act).

📝 What Information Does the CTA Require?

Reporting companies formed before January 1, 2024 must file reports electronically with FinCEN that include:

  • Company information:

    • Full legal name

    • Trade names

    • Business address

    • State of incorporation or registration

    • Employer Identification Number (EIN)

  • Beneficial owner information:

    • Full legal name

    • Date of birth

    • Residential street address

    • Unique ID number from an identification document (e.g., driver’s license, passport)

    • Image of the ID document

Reporting companies formed on or after January 1, 2024 must report all of the information above plus information for any “company applicants” (i.e., individuals involved in the company’s formation filing, regardless of whether they are beneficial owners).

🔍 Who is a Beneficial Owner?

A beneficial owner is an individual who:

  • Exercises substantial control. This includes senior officers (e.g., CEO, CFO) or those with authority to appoint/remove directors; or

  • Owns or controls at least 25% of the ownership interests. This includes ownership rights through stock, capital interests, convertible interests, or options.

📺️ Here’s a short about the Corporate Transparency Act. It’s a bit old but still useful!

Initially, the CTA required reporting companies formed before January 1, 2024 to file BOI reports with FinCEN by January 1, 2025. All other reporting companies were required to file within 90 days of formation. However, these deadlines have been extended after the following legal developments resulting from challenges to the CTA’s enforceability:

  • December 3, 2024: A Texas federal court issued a nationwide injunction against the CTA, declaring it likely unconstitutional and indefinitely suspending the enforcement of the reporting deadline.

  • December 23, 2024: The Fifth Circuit Court of Appeals revived the CTA’s enforceability, reinstating the January 1, 2025 compliance deadline for existing entities. Following the Fifth Circuit decision, FinCEN granted reporting deadline extensions for non-exempt companies. For many reporting companies, the deadline was extended from January 1, 2025 to January 13, 2025.

📅 Reporting Deadlines

Here’s a breakdown of the 🔗new reporting deadlines in the aftermath of the various legal challenges:

  1. Reporting companies formed before January 1, 2024: January 13, 2025

  2. Reporting companies formed between September 4, 2024 and December 2, 2024: January 13, 2025

  3. Entities formed between December 3, 2024, and December 23, 2024: Varies. These entities have been given an additional 21-day extension beyond the original deadline.

  4. Entities Formed on or after January 1, 2025: 30 days after formation.

🚫 Penalties for Noncompliance

Failing to comply with the CTA carries stiff penalties.

  • Willful Reporting Violations (willfully reporting false information, or willfully failing to report or make updates):

    • Civil Penalty: Fine up to $500 per day for each day the violation continues.

    • Criminal Penalty: Fine up to $10,000, and/or imprisonment for up to two years. There may be increased criminal fines and potential imprisonment if the failure to file is combined with other illegal activities.

  • ·Unauthorized Disclosure or Use of Beneficial Ownership Information:

    • Civil Penalty: Fine of $500 per day for each day the violation continues.

    • Criminal Penalty: Fine up to $250,000, and/or imprisonment for up to five years.

No good!

🛡️ How You Can Prepare

To ensure your business meets the CTA requirements, consider the following steps:

  1. Gather Beneficial Ownership Information:

    • Collect names, addresses, dates of birth, and ID numbers of all beneficial owners.

  2. Implement Compliance Processes:

    • Work with legal and compliance advisors to establish procedures for ongoing compliance, including tracking ownership changes and reporting updates. If you are already working with a registered agent who handles other regulatory reporting, you may consider asking whether they also handle CTA compliance.

  3. Monitor Legal Developments:

    • Stay informed about court decisions and potential changes to the CTA’s enforceability. As noted above, the highest court to weigh in so far has been the Fifth Circuit, but this matter could be headed to the U.S. Supreme Court, pending further appeals. Stay tuned!

    • Adjust compliance strategies based on new legal guidance.

 / WRAPPING THE CASE

  • The CTA is back!

  • Existing reporting companies must comply by January 13, 2025.

  • New reporting companies formed after January 1, 2025, must report within 30 days of formation.

Thanks for reading, everyone.

Have a great weekend! 🙌 

/ JURY TRIAL

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