The Corporate Transparency Act: What Real Estate Investors Need to Know
What is the Corporate Transparency Act (CTA)?
The CTA, effective on January 1, 2024, will require all “Reporting Companies” to report beneficial ownership information (BOI) to the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN).The essential function of the CTA is to combat the use of shell corporations to facilitate financial crimes (i.e. money laundering) and other illicit activities. The information contained in BOI reports is intended for government regulatory bodies and law enforcement and will not be publicly accessible.
“Reporting Companies:” who will be required to make BOI reports?
Any corporation, limited liability company (LLC), or other similar entity (e.g. a limited partnership) that is created by filing a document with a secretary of state or similar office will be required to make a BOI report to FinCEN.While there are 23 exemptions from this definition and the accompanying reporting requirements, notably including “large operating companies,” the average real estate investor will not fall under any of these categories. In other words, many real estate investors will likely be required to make BOI reports to FinCEN. Reporting Companies formed before January 1, 2024 must file a BOI report before January 1, 2025. Reporting Companies formed on or after January 1, 2024 must file a BOI report within 30 days of formation.
What’s in a BOI report?
BOI reports will provide information about the Reporting Company, such as (1) the name of the Reporting Company; (2) the address of the Reporting Company; (3) the state of formation of the Reporting Company; and (4) the Tax Identification Number (either TIN or EIN) of the Reporting Company.BOI reports will also identify a Reporting Company’s “Beneficial Owners” and “Company Applicants” and will include information sufficient to identify those individuals. Beneficial Owners and Company Applicants will have to disclose identifying information in a BOI report, such as the full legal name of the individual; the date of birth of the individual; the current address of the individual; and a unique identifying government ID number (e.g. a passport or driver’s license number).
Who are Beneficial Owners?
Beneficial Owners are individuals who, either directly or indirectly, exercise substantial control over the Reporting Company or own or control 25 percent or more of the Reporting Company’s “ownership interests.” “Ownership interests” is defined broadly (subject to limited exceptions), and includes equity and other types of interests, such as profit interests, convertible instruments, or options to acquire equity. An individual has “substantial control” over a Reporting Company if that individual (1) serves as a senior officer, (2) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body), or (3) can direct, determine, or has substantial influence over important decisions made by the reporting company. These definitions are expansive, and will likely include a large number of real estate investors as “Beneficial Owners,” subjecting these individuals to the BOI reporting requirements of the CTA.
Who are Company Applicants?
A Company Applicant is any individual who (1) directly files a document that creates a domestic reporting company, (2) directly files a document that first registers a foreign reporting company, or (3) who is primarily responsible for directing such filing. Additionally, the individual that directs the filing or formation of a company is a Company Applicant. However, Company Applicants of entities created before January 1, 2024 do not need to be included in a BOI report. Under these definitions, employees or owners that file after January 1, 2024 for the formation of a Reporting Company will be Company Applicants and will have to disclose their information in a BOI Report. Additionally, registered agents, attorneys, and other businesses or professionals who form companies on behalf of clients will also be required to disclose their identifying information as Company Applicants.
What should real estate investors do to comply with the requirements of the CTA?
These laws are new and constantly changing, and compliance with the CTA presents challenges and uncertainties for real estate investors and attorneys alike. Real estate investors should seek competent counsel from their attorneys and should ask any professionals that form their companies about how the CTA will affect them. For more information about the CTA, real estate investors can consult FinCEN’s “Small Entity Compliance Guide.”
Disclaimer
Information contained in this article is for educational purposes only. Statements made in this article are not legal advice and cannot account for the specifics of any given factual situation. This article is not intended to be, and should not be used as, the only source of information when evaluating legal compliance or issues. The article is not legal advice and should not be substituted for legal advice. Further, the laws discussed have not yet taken effect and are constantly changing. This article is not intended to create, and it does not constitute, an attorney-client relationship with 3 Pillars Law, PLLC or any attorney. If you have questions regarding your compliance with the laws discussed or any other factual or legal circumstance, please seek legal counsel from a competent attorney.