Beginning January 1, 2024, pursuant to the Corporate Transparency Act (CTA), many businesses are required to file information with the federal government with regard to their ownership.  Required timing of the filing depends on whether the business was formed on or after January 1, 2024 or if it already existed prior to 2024.  See “When to Report”, below.  It should be noted that once the information is reported, there are no further filing requirements unless there are changes to the original information. Therefore, this will be a one-time filing for many businesses.

Please note:

• There are substantial criminal and civil penalties for non-compliance.

• Penalties can be avoided if a corrected report is filed within 90 days after submission of the erroneous report.

• The CTA requires certain types of domestic and foreign entities, called ‘‘Reporting Companies’’ (RC) to submit specified Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN).  FinCEN is authorized to share this BOI with certain Government agencies, financial institutions, and regulators subject to appropriate protocols.

• The CTA was passed into law to assist the government with its anti-money laundering campaign.  The CTA casts a wide net and requires many businesses that are not involved in illegal activities to provide information on their ownership.

NEW YORK LLC TRANSPARENCY ACT (NYLTA)

On December 22, 2023, Governor Hochul signed into law the New York LLC Transparency Act.  The NYLTA is similar in many ways to the CTA.  One of the differences between them is that the NYLTA only applies to LLCs and not corporations.  The effective date of the NYLTA is December 21, 2024 as opposed to the CTA’s date of January 1, 2024.  We will provide further details on this in future newsletters.

TYPES OF ENTITIES

• Domestic entities created by filing of a document with a Secretary of State or similar office (e.g., Corp., LLC, LLP, LP, statutory trusts, MA trusts)

• Rules did not expand this to include personal trusts.

• If a trust owns an interest in a RC, BOI could be required.

• Foreign companies formed under law of a foreign jurisdiction that register to do business in the US.

EXEMPTIONS

• Large operating companies that meet the following three criteria

• More than 20 full‐time employees in the US

• Filed Federal return showing over $5m gross receipts/sales (US source income)

• Actual physical office (not a residence/not shared space) in the US

• Public companies

• Tax‐exempt entities: organization described in IRC 501(c); trust described in IRC 4947(a)(1) [fully charitable trusts] and (2) [split‐interest trusts]

• Registered Commodity Exchange Act entities, registered investment companies or investment advisers, broker-dealers and registered venture capital fund advisers

• Accounting firms registered with the PCAOB

• Inactive entities (that meet specified criteria)

BENEFICIAL OWNERS

An individual who (i) directly or indirectly exercises substantial control over the reporting entity, or (ii) owns (individually or jointly) at least 25% of the entity.

• Substantial Control  includes

• Serving as a senior officer (e.g., president, CFO, general counsel, CEO and COO, secretary and treasurer), of RC

• Authority over the appointment or removal of a senior officer or majority of the board

• The ability to direct or influence important decisions of the RC

• Ownership Interest

• Includes equity and convertible (debt) instruments, such as warrants, rights and options. Ownership (or control) can be by way of an individual’s position as a grantor or settlor, a beneficiary, a trustee or by authority to dispose of trust assets

• NOTE: It is possible to have no individual with a 25% or greater ownership interest, but it is not possible to have no one with substantial control of a reporting company.

BENEFICIAL OWNER: TRUSTS

While trusts are generally not a Reporting Company, ownership or control of at least 25% of a Reporting Company by a trust could make the settlor, trustee, beneficiary or another person a “beneficial owner.”

WHAT TO REPORT

Reporting Company (RC)

• Full legal name and DBA name

• Principal place of business (street) address

• State/Jurisdiction of formation

• TIN or EIN (issued by IRS, or, if none, by foreign jurisdiction)

• Beneficial Owner (BO)

• Full legal name

• Date of birth

• Current residential address

• Unique identifying number from (Passport, License, State ID)

• Image of such document with individual’s picture.

WHEN TO REPORT

• Existing entities: Reporting Company (RC) formed or registered before

January 1, 2024.  File report no later than January 1, 2025

• New entities  

• New entities formed or registered on or after January 1, 2024 must file no later than 90 calendar days after trigger date (earlier of (i) date RC received actual notice of formation is effective or (ii) date secretary of state provides public notice of creation).

• New entities formed on or after January 1, 2025 have only 30 days to report their information.

• Updated reporting:

• Change in any of the BOI or RC information

• Sale or gift of an equity interest, admission of a new member, etc.

• Change of address

• Change of name, e.g. marriage or divorce

• RC required to update reporting within 30 calendar days of change

• Special rule: Death of a Beneficial Owner owning 25% or more of an RC is required to be reported within 30 days after settlement of the estate.

• Incorrect Reporting:

• Once an RC recognizes (or should have recognized) that it has filed inaccurate information, it will have 30 days to update that information.

WHERE TO REPORT

Beneficial Owners can submit their ownership information on FinCEN’s website: www.fincen.gov/boi.  Changes to their BOI can also be reported on this website.

• There are strict security and confidentiality requirements for storage and access.

• There are no fees for submitting BOI reports to FinCEN.

CONCLUSION

The Federal and New York State corporate transparency requirements will result in additional time and costs for small business.  In some cases the businesses will require assistance from their accountants and attorneys.  As always, if you have any questions or need assistance with your submission, a Perlson professional would be happy to help at (516) 541-0022.

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