25 Jul What is the Corporate Transparency Act – and How Does It Affect You?
The Corporate Transparency Act (CTA) is a federal law that became effective on January 1, 2024 (the “Effective Date”). Generally speaking, the CTA obligates “for profit” companies, such as an LLC or corporation that was formed in the USA by filing papers with a state, to file “beneficial ownership information” (BOI) with the Financial Crimes Enforcement Network (“FinCEN”) of the US Department of Treasury. This blog will cover generally what the CTA is about. Each particular situation will be different, but after reading this, you’ll at least be aware of the issues.
All companies which existed as of the Effective Date are required to file a BOI. This is true, even if the company is dormant. New companies must file the BOI within 90 days of formation. Only if the company completed the process of formally and irrevocably dissolving before the Effective Date is it relieved of the obligation to file. If a company was formed after the Effective Date, then it must file a BOI within 90 days of formation, even if it was dissolved within 90 days of formation.
According to FinCEN, the CTA was created to identify “[i]llicit actors [who] frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system.” The information required by the BOI includes information regarding the formation of the company, and the following information about beneficial owners of more than 25% of the company: name, date of birth, address, and document number of a government-issued identification, such as a passport.
Loan out companies, production companies, publishing companies, and record companies, whether owned by one or two people or many people are required to file the BOI. Companies existing as of the Effective Date must file the BOI before December 31, 2024.
Notwithstanding all of this, there is litigation pending, in which a Federal District Court Judge decided that the CTA was unconstitutional and suspended the enforcement of the statute. Nevertheless, if the issue is resolved and the law is ultimately found to be constitutional, then compliance will begin anew.
My firm does not file any documents, such as the BOI, to comply with the CTA. We recommend to our clients that they engage a service to file that form and to maintain its accuracy from year to year. If you already have a corporate service company, that company likely can handle these issues for you. If you would like to engage a service, we recommend www.eminutes.com. They will bring companies into compliance with the CTA but only for clients who engage their services to maintain the relevant entity on an annual basis. Moreover, their focus is on forming and maintaining companies in the entertainment business. I believe they maintain approximately 50,000 entities through sophisticated automation. The company is staffed by licensed attorneys. I do not receive any referral fee or other share of compensation from them.