■ Law
■ Law
Question 4 : Who is a Beneficial Owner ?
A “ beneficial owner ” is any natural person who , directly or indirectly , either ( 1 ) exercises substantial control over the reporting company or ( 2 ) owns or controls 25 % or more of the ownership interests of the reporting company . A reporting company must have at least one beneficial owner .
Question 5 : What is Substantial Control ?
A person with substantial control includes a person : ( 1 ) Serving as a senior officer , such as the president , chief executive officer , general counsel , chief financial officer , chief operating officer , and any other officer , regardless of title , performing similar functions ; ( 2 ) having authority over the appointment or removal of a senior officer or a majority of the board of directors or other governing body ; ( 3 ) directing , determining , or having substantial influence over important decisions , such as sale of principal assets , major investments , issuance of equity , incurrence of significant debt , compensation for senior officers , and actions related to significant contracts and governing documents ; or ( 4 ) having any other form of substantial control over the reporting company . A person ’ s title is not determinative . Instead , it is the person ’ s authority or function that determines substantial control or influence .
Question 6 : What is a 25 % or More Ownership Interest ?
A person who owns or controls 25 % or more of the ownership interests of the reporting company is a beneficial owner . Ownership or control includes not only stock and other equity , but also convertible debt , warrants , options , etc . and anything else that may give a person ownership or control . This analysis is done on a fully-diluted basis assuming the exercise of all warrants / options and conversion of all debt into equity . Further , a company with entity owners is required to “ drill down ” until it has the BOI of a natural person owning or controlling such entities .
A person may have ownership or control in a variety of ways , including : ( 1 ) through joint ownership ; ( 2 ) as a trustee of a trust ; ( 3 ) as a beneficiary of a trust ; ( 4 ) as the grantor or settlor of a revocable trust ; and ( 5 ) having ownership or control of entities that own or control ownership interests of the reporting company . The CTA provides that certain individuals , such minor children , nominees , intermediaries , custodians , agents , employees , and certain creditors , are not beneficial owners .
Question 7 : Who is a Company Applicant ?
A reporting company formed or registered on or after January 1 , 2024 must also identify any “ company applicant ”, including the “ direct filer ” and the individual who “ directs or controls the filing action ”. A direct filer is the person who directly files the document forming a domestic company or registering a foreign company to do business in the U . S . A person who directs or controls the filing is primarily responsible for directing or controlling the filing of the document by another , if more than one person is involved in the filing .
Question 8 : When Must You File the Report ?
A company created or registered on or after January 1 , 2024 must file an initial beneficial ownership information report (“ BOI Report ”) within 90 days after receiving notice that the company has been formed or registered . A company created or registered before January 1 , 2024 must file an initial BOI Report before January 1 , 2025 . A company created or registered on or after January 1 , 2025 must file an initial BOI Report within 30 days after receiving notice that the company has been formed or registered .
Question 9 : When Must You Update or Correct Your Report ?
A reporting company is obligated to update or correct its report within 30 days after ( 1 ) a
The CTA becomes effective on January 1 , 2024 . It will force more than 30 million privately-held companies to register with the federal government and disclose certain personal information about their owners and management .
change in information of the company or a beneficial owner or ( 2 ) becoming aware that previously reported information is inaccurate .
Question 10 : Where do You File The Report ?
A reporting company must file its reports electronically , either through FinCEN ’ s secure filing system or engaging a third-party service provider ( e . g ., registered agent company ).
Question 11 : What is a FinCEN Identifier ?
A FinCEN identifier is a unique identifying number that FinCEN will issue to individuals and entities upon request . For example , an individual may electronically apply for a FinCEN identifier by providing the same information required in BOI reports . Once a beneficial owner has a FinCEN identifier , she may provide the reporting company with her FinCEN identifier rather than her personal information .
Question 12 : Who Has Access to Your Personal Information ?
FinCEN will store BOI in a secure nonpublic database – the Beneficial Ownership Secure System (“ BOSS ”). The general public will not have access to BOI . It will remain confidential and cannot be used or disclosed except as authorized in the CTA and its regulations . For example , FinCEN is authorized to disclose BOI to federal agencies engaged in national security , intelligence , or law enforcement activities .
Question 13 : What Happens if You Don ’ t Comply ?
The CTA provides for significant civil and criminal penalties for reporting violations , such as willfully ( 1 ) failing to report BOI to FinCEN , ( 2 ) providing false or fraudulent BOI to FinCEN , and ( 3 ) failing to update BOI . The civil penalty is not more than $ 500 for each day that the violation continues or has not been remedied . The criminal penalties are fines of not more than $ 10,000 , imprisonment for not more than 2 years , or both . The penalties may apply to ( a ) the reporting company , ( b ) senior officers of the reporting company , and ( c ) any individual who causes a reporting company not to report . Therefore , if a beneficial owner fails to provide BOI to a reporting company , the beneficial owner is subject to the penalties under the CTA .
Question 14 : What Should You do Now ?
You should do an analysis to determine whether you are a reporting or exempt company . If a reporting company , determine your beneficial owners and gather BOI from them . You should amend your governing documents ( e . g ., bylaws , shareholder agreements , operating agreements , etc .) and any other applicable agreements ( e . g ., executive employment agreements , stock option plans , convertible debt , etc .) to ( 1 ) require owners , management , etc . to provide their BOI and required documentation to the company , ( 2 ) impose penalties for failing to do so ( e . g ., indemnification of the company for FinCEN fines ), and ( 3 ) provide that the company will maintain the confidentiality of the BOI , except to comply with the CTA .
Conclusion
This article is only the tip of the iceberg . For a more comprehensive analysis of the CTA , please review the advisory at https :// www . archerlaw . com / understanding-your-obligations-under-the-corporate-transparency-act .
Gianfranco A . Pietrafesa is a partner , and Zhao Li an associate , at Archer & Greiner , P . C . They may be contacted at gpietrafesa @ archerlaw . com or 201-498-8559 and zli @ archerlaw . com or 856-673-7140 , respectively .
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