• In our October 2023 newsletter, we informed you about new regulations that arose from the Corporate Transparency Act.  You may need to be in compliance with these new regulations if:
  
  • If you own a small business (LLC, Corporation, etc.)
  • Your small business has 20 or fewer full-time employees and less than $5 million in revenue

The new regulations require small businesses that qualify as reporting companies and are formed prior to 2024 to report the beneficial owners of their entity.  For those formed in 2024, they must also include information on the company applicants.  

Recent Update

Recently, a federal court in Alabama has ruled the Corporate Transparency Act as unconstitutional.  Alabama court rulings are not binding on Texas residents, but we believe that there may be future court rulings in Texas or federally that would apply to Texas residents.  As such, for entities created prior to 2024, you may want to wait for further resolution of the matter as the deadline to apply isn’t until the end of the year.

Overall, we here at Leigh Hilton PLLC strive to provide up to date information on changes in the law that may be relevant to you.  As the law changes in various areas, we will stay up to date on all applicable areas of the law for your estate planning needs and hope to provide other useful information that may be applicable to your unique needs.  

What Constitutes a Reporting Company?

A Reporting Company is any domestic or foreign corporation, limited liability company, or similar entity that was either formed or registered to do business in any state or jurisdiction by filing a document with a secretary of state or other similar office and which does not qualify for an exemption. However, there are many exceptions to reporting for already regulated or transparent entities. This includes public companies, banks, insurance companies, charities, and businesses that have more than 20 employees and $5 million in revenue.

Who is a Beneficial Owner?

A beneficial owner is one who either owns or controls 25% of the ownership interest of a reporting company or who has substantial control over a reporting company.  Substantial control can be determined by a few factors including: 

(i) Serving as an officer of a reporting company, 

(ii) having authority over senior officers or majority of the board of a reporting company,

(iii) having substantial influence over the reporting company’s important decisions; or 

(iv) having some other type of substantial control over a reporting company.

Who is a Company Applicant?

A Company Applicant is any individual applies to form or register an entity under the laws of a state. This means that if a family member files a document registering an entity on behalf of a relative, both the family member and relative are considered company applicants.  Additionally, if you are a law firm or accountant (or you hired one) who filed to incorporate an entity on behalf of a client, you may need to report as a company applicant.

Where do I report?

Reporting is done on the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) online portal.  Filing is free of charge and is not an annual requirement.  Further reporting is only required if there is a change in the beneficial ownership of your entity.  The website for filing the beneficial ownership reports is:  https://www.fincen.gov/boi

What do I report?

Generally, reporting companies must provide four pieces of information about each beneficial owner:

• name;
• date of birth;
• address; and
• the identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.

Deadlines

• New entities created on or after January 1, 2024 will have 30 days to comply upon being formed.  
• Entities that were already formed before January 1, 2024 will have one year (until January 1, 2025) to comply.  
• Additionally, entities must update their information within one year of any changes.

Penalties

Failure to comply with the Corporate Transparency Act can result in steep penalties.  The penalties for failure to comply with the law or for providing false or misleading information include fines of up to $500 per day and imprisonment for up to two years.