If you own a rental property or operate a business through an LLC, the Corporate Transparency Act (CTA) is something you need to be aware of. Enacted in 2021, this act is set to take effect for small businesses on January 1, 2024. In this blog, we'll break down the key aspects of the CTA, its requirements, exemptions, and how you can ensure compliance to avoid severe penalties.
Understanding the Corporate Transparency Act
What is the CTA?
The Corporate Transparency Act aims to prevent the use of anonymous shell companies for illegal purposes such as money laundering and tax evasion. It requires businesses to file a Beneficial Owner Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) to disclose the true owners or controllers of the company.
Who is Affected?
Approximately 32 million existing businesses, including rental property owners, will be impacted by the CTA. The law primarily applies to smaller businesses that are not heavily regulated by the government.
Exemptions from the CTA
"Large operating companies" with more than 20 full-time employees, $5 million in domestic gross receipts, and a physical presence in the U.S. are exempt from the CTA. This exemption can positively impact businesses seeking visibility.
Business entities formed before 2020 that are now inactive do not need to file a BOI report. This exemption provides relief for businesses with historical records.
Heavily Regulated Businesses:
Certain businesses, such as publicly traded corporations, investment funds, and tax-exempt nonprofits, are exempt from the CTA.Understanding these exemptions can enhance your business's online presence.
Filing a BOI Report
For reporting companies, the BOI report must include details about each beneficial owner, such as full legal name, date of birth, address, and a unique identifying number. Additionally, information about the company itself, like legal name, address, and taxpayer identification number, must be provided.
Beneficial owners can obtain a FinCEN identifier to protect their personal data. This identifier can be used in lieu of personal information in the BOI report.
Businesses must update their BOI reports within 30 days of any changes, ensuring accurate and current information.
Amending Governing Documents:
For multi-owner businesses, it is advisable to amend governing documents (LLC operating agreements, corporate bylaws, etc.) to mandate CTA compliance. This includes representations, covenants, indemnifications, and consents related to CTA requirements.
Appointing a Responsible Party:
Designate someone within the company to manage the gathering and updating of beneficial owner information, filing the initial BOI report, and ensuring ongoing compliance.
In summary, the Corporate Transparency Act is a significant development for businesses and rental property owners. Understanding the requirements, exemptions will help you navigate this new regulatory landscape. Stay informed, update your records, and take the necessary steps to avoid penalties and legal consequences.
Disclaimer: Laws and regulations are subject to change, and readers are advised to consult EPL advisors for personalized advice and compliance with specific state requirements. This information is not specific advice and is meant for general education.
You can reach our CEO and founder Peter Ellefson anytime at Peter@eplfs.com