The Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act provisions in the NDAA of 2021 (National Defense Authorization Act). Beginning January 1, 2024, the CTA requires a business entity, defined as “reporting company,” that is not exempt, to report information on their “beneficial owners” (beneficial owner information – BOI) with the Financial Crimes Enforcement Network “FinCEN.”

A reporting company can be a domestic reporting company or foreign reporting company. A domestic reporting company is a corporation, limited liability company (LLC), or entity otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity registered to do business in any U.S. state or Indian tribe.

A reporting company created or registered prior to January 1, 2024, will have until January 1, 2025 to report. A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN. Updates or corrections to beneficial ownership information (BOI) previously filed with FinCEN must be submitted within 30 days.

There are twenty-three types of entities exempt from the beneficial ownership information reporting requirements. These entities include securities reporting issuers, publicly traded companies, governmental authorities, banks, nonprofits, and large operating companies.

FinCEN’s Small Entity Compliance Guide includes checklists for each of the 23 exemptions to help determine whether a company qualifies for an exemption.

A reporting company is an entity that does not qualify for an exemption. Reporting companies must report beneficial owner information (BOI) to FinCEN. A beneficial owner is defined as any individual who, directly or indirectly, exercises substantial control over a reporting company OR owns or controls at least 25 percent of the ownership interests of a reporting company. An individual might be a beneficial owner through substantial control, ownership interests, or both. Reporting companies are not required to report the reason that an individual is a beneficial owner. See Chapter 2 Beneficial Ownership Information.

A domestic reporting company created on or after January 1, 2024, or a foreign reporting company first registered to do business in the United States on or after January 1, 2024, is required to report up to two company applicants. A domestic reporting company created before January 1, 2024, or a foreign reporting company first registered to do business in the United States before January 1, 2024, is not required to report its company applicants.

As noted in the BOI Small Entity Guide, supra, there are two categories of company applicants: the “direct filer” and the individual who “directs or controls the filing action.” The “direct filer” is the individual who directly filed the document that created a domestic reporting company, or the individual who directly filed the document that first registered a foreign reporting company. This individual would have actually physically or electronically filed the document with the secretary of state or similar office. This can have implications for law firms.

The individual who was primarily responsible for directing or controlling the filing of the creation or first registration document is the other category of applicant. This individual is a company applicant even though the individual did not actually file the document with the secretary of state or similar office.

The Required Information Checklist is an excellent resource for what information to collect about the company, beneficial owners and company applicants. See Chart 7 beginning at Page 44. An individual or reporting company may request a “FinCEN identifier” from FinCEN. See Chapter 4.

If a company is required to file a BOI report, it must be filed electronically through a secure filing system. FinCEN’s filing system is currently under development and will not be available until January 1, 2024.

FinCEN will publish instructions and other technical guidance on how to complete the BOI report form. This guidance will be available at: https://www.fincen.gov/boi. Note: There may be certain circumstances in which a reporting company is unable to electronically file a BOI report through FinCEN’s secure filing system. In those cases, the reporting company should contact FinCEN: https://www.fincen.gov/contact.

There are penalties of not more than $500 for each day violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000 for violating the reporting requirements of CTA.

Section 5336(h)(3)(c) of the CTA provides a safe harbor from the civil and criminal penalties if a person submitting incorrect information submits a report containing corrected information not later than 90 days after the date the person submitted the report originally, with certain conditions.

CTA impacts lawyers providing representation to corporate clients and areas of practice including probate, estate and asset management, succession planning, employment, and real estate. Here are some practice considerations:

Undertaking representation

• Are you undertaking representation for the formation of an entity?
  • Will the entity be a reporting company or does it qualify for an exemption?
  • If BOI reporting required, determine and assign responsibility for filing the BOI report by the deadline
• Are you undertaking representation regarding CTA compliance?
  • Will you be “company applicant”?
  • Who will file for FinCEN identifier?

Document representation

• Use clear engagement letter to define scope of your representation
  • See Ethics Guide Limited Scope Representation for sample form Checklist: Attorney and Client Task Assignment
  • Be clear!
  • What is your role?

Communicate with clients

• Is client a reporting company?
  • Who will file report?
  • Who will monitor changes?
  • Who will be responsible for updates?
• Do you intend to inform clients?
  • Notify current clients (But note there is no affirmative duty to notify former clients of change in the law where representation is terminated.)
  • Do not inadvertently create attorney/client relationship with this communication!

Review firm policies and procedures

• Consider changes to intake forms regarding details for ownership and control of reporting companies and other BOI data
• Update fee agreement and engagement letters to define scope of representation
• Consider defining representation to limit specific representation and exclude implications of ongoing advice and assistance
• Look at forms and documents that may need to be revised. Consider whether documents need:
  • to require an ongoing duty to inform reporting company of changes required to be reported to FinCEN for any person with BOI.
  • to include language in employment agreements for persons with substantial control to provide and keep updated required information.

Clearly conclude representation

• Send file closing letter when representation concludes
  • Carefully consider duties undertaken and do NOT unintentionally take on continued reporting obligations

If a client is uncooperative with CTA requirements, it would be prudent to discuss ramifications with your client. Consider the need to withdraw from representation should your client be unwilling to follow your advice as to CTA compliance.

While CTA reporting goes into effect on January 1, 2024, FinCEN’s filing system is currently under development. FinCEN will publish instructions and other technical guidance on how to complete the BOI report form that will be available at: https://www.fincen.gov/boi.

FinCEN has issued a Fraud Alert that there have been fraudulent attempts to solicit information under CTA. If there is an unsolicited communication via phone, text, or email claiming to represent or be an employee of FinCEN, it is a scam! To report this, contact the Treasury’s Office of Inspector General at http://www.treasury.gov/about/organizational-structure/ig/Pages/OigOnlineHotlineForm.aspx 

Now is the time to begin the process of looking at your firm documents and considering if you will undertake representation relating to this new Act. As always, please feel free to call OBLIC if you have any questions.

This information is made available solely for loss prevention purposes, which may include claim prevention techniques designed to minimize the likelihood of incurring a claim for legal malpractice. This information does not establish, report, or create the standard of care for attorneys. The material is not a complete analysis of the topic and should not be construed as providing legal advice. Please conduct your own appropriate legal research in this area. If you have questions about this email’s content and are an OBLIC policyholder, please contact us using the information above.