Written by Perry L. Mintz, Partner at Gallet Dreyer & Berkey, LLP.

NOW IS THE TIME TO PAY ATTENTION TO THE CORPORATE TRANSPARENCY ACT.  WHAT YOU NEED TO KNOW AND NEED DO TO NOW

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The Corporate Transparency Act (the “CTA”) became effective January 1, 2024, and it may require your entity/ies to report information about ownership to the United States government.
For most entities required to file, the filing deadline is January 1, 2025. Those who fail to file by the deadline (or fail to update the information if needed) could be subject to (a) imprisonment up to two years, (b) fines up to $10,000 and/or (c) civil penalties of up to $500 per day.

The CTA requires entities that meet certain criteria to file with the United States Department of Treasury’s Financial Crimes Enforcement Network (“FinCen”) a Beneficial Ownership Information (“BOI”) report. Most corporations, limited liability companies, and limited partnerships, as well as most cooperative corporations, and perhaps, condominium associations, homeowners’ associations and other community associations, are required to report to FinCen under the CTA.

The CTA is the United States government’s attempt to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific entities formed in or accessing the United States market.

A. Which entities are considered reporting companies?

1. Domestic reporting companies are corporations, limited liability companies, limited partnerships (including family limited partnerships) and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
2. Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

However, there are many types of entities that are not considered a reporting company and are exempt from the reporting requirements under the CTA. Such exemptions include, in particular, one for the “large operating company” exemption, which applies to those entities that have more than twenty full-time employees in the United States and reported over $5 million in gross receipts or sales in the previous year on their federal tax returns. Other exemptions apply for certain entities that are currently subject to existing regulations such as banks, credit unions, insurance companies and investment companies.

B. What are the deadlines for reporting companies file their BOI reports with FinCen? Are amended filings required?

1. For a reporting company created or registered to do business before January 1, 2024, the deadline to file its initial BOI report is January 1, 2025.

2. For a reporting company created or registered on or after January 1, 2024, and before January 1, 2025, the deadline to file its initial BOI report is 90 calendar days after receiving notice of the company’s creation or registration.

3. For a reporting company created or registered on or after January 1, 2025, the deadline to file their initial BOI report is 30 calendar days from actual or public notice that the company’s creation or registration is effective.

If there is any change to the reporting information concerning the reporting company or its beneficial owners, the reporting company must file an updated report within 30 days after the date of the change.

C. Who is considered a Beneficial Owner of an Entity?

According to the CTA, an individual qualifies as a Beneficial Owner if such individual either directly or indirectly (i) exercises substantial control over the reporting company; or (ii) owns or controls at least 25% of the reporting company’s ownership interests.

Determining whether an individual exercises substantial control is often a fact-based analysis. However, determining ownership is, or may be more clear, by looking at the ownership rights in the reporting company such as shares of equity, stock, voting rights, membership interests, partnership interests, or any other mechanism used to establish ownership.

D. What information is included in the BOI report:

The BOI report is required to include certain information regarding the Reporting Company, each Beneficial Owner and for reporting companies registered on or after January 1, 2024, their company applicants (which is (i) the individual who directly files the document that registers the reporting company; and (ii) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing; but not more than two individuals).

E. Are reporting companies required to file with FinCEN even if the information is provided to their financial institutions?

Sharing beneficial ownership information with a financial institution does not satisfy the CTA filing requirements.

F. Who else has access to the BOI reports?

FinCEN can share beneficial ownership information with federal, state and local officials, as well as certain foreign officials, and under certain circumstances, financial institutions but only with the consent of the reporting company.

G. Application to Co-ops, Condos and HOAs:

The CTA applies to cooperative corporations and may apply to condominiums and homeowner associations, unless they qualify for the “large operating company” or other exemption.

One defining feature of a reporting company under the CTA is that the entity is created by the filing of a document with the secretary of state or similar office.  In New York State: 

1. a cooperative corporation files its Certificate of Incorporation with the New York Secretary of State (NYDOS), so it satisfies this feature. 
2. a condominium is required under the New York State Real Property Law to file its declaration of condominium with the New York Secretary of State.  Although it is not clear that such filing “creates” the condominium, we believe that prudence dictates compliance as a reporting company (if otherwise applicable) to avoid the significant penalties unless and until it is clear that condominiums in this situation are exempt. 
3. a homeowners association may be formed by the filing of a Certificate of Incorporation, and in such case, this feature is satisfied.  There is no explicit reference in the CTA to an unincorporated association (such as an unincorporated homeowners association). However, the FinCEN Frequently Asked Questions, https://fincen.gov/boi-faqs states in C.10. that “homeowners associations (HOAs) can take different forms.  As with any entity, if an HOA was not created by the filing of a document with a secretary of state or similar office, then it is not a domestic reporting company.” 

Individual senior officers (i.e., the president, vice president, treasurer and secretary) of cooperatives, condominiums and homeowner associations that are reporting companies (for which an exemption does not apply) and those individuals who serve on the board of such an entity who are important decision-makers or otherwise exercise any form of substantial control over the entity, must file a BOI report. Additionally, as members of the Board change after each election or otherwise, the BOI report must be updated within 30 days of the election results being certified.

New York City Department of Housing Preservation and Development has indicated that it expects Mitchell-Lama developments to comply with the CTA. 

G. Is the CTA Unconstitutional?

On March 1, 2024, no less than 60 days after the CTA became effective, the U.S. District Court for the Northern District of Alabama ruled that the CTA is unconstitutional in the case National Small Business United v. Yellen. FinCen released a press release in response which implied that FinCen will appeal the court’s decisions and made clear that the decision only applies to the plaintiffs specifically named in the case. Accordingly, we are advising our clients to comply with the CTA and not rely on this court decision as an excuse to avoid the filing.

G. And don’t forget the New York State NYLLC Transparency Act:

The New York LLC Transparency Act is similar in many ways to the CTA, but is only applicable to limited liability companies (LLCs) formed in, or authorized to do business in, New York State; and there are exemptions that apply. In addition, New York’s version of the CTA takes effect on January 1, 2026. LLCs formed or authorized to do business before January 1, 2026, have one year – until January 1, 2027 – to make their initial filings with the New York State Department of State. LLCs formed or qualified on or after January 1, 2026 have 30 days from such formation or qualification to comply. .

J. More Details:

For more specific details including additional information regarding the nature of the disclosure required, please refer to our prior article on the CTA (https://www.gdblaw.com/blog/corporate-transparency-act), or contact us.

K. Next steps; review and, if applicable, complete your filing timely:

The CTA casts a very wide net and unless your reporting company can take advantage of one of the exemptions, your reporting company will be required to file the BOI report with FinCen.

We can help.
Please contact us at your earliest convenience so that we can assist you to navigate this process including assessing whether a filing is necessary, and if so, filing the appropriate documentation with FinCen in a timely manner. 

Perry L. Mintz, Esq. 

Gallet Dreyer & Berkey, LLP

212-935-3131

plm@gdbaw.com