Corporate Transparency Act: Ongoing compliance for reporting companies

Centralizing entity management functions for CTA compliance

To improve your ability to track and stay in compliance with CTA requirements, centralizing entity management functions – as well as other regulatory requirements and changes – is essential.

To streamline and centralize this process, consider creating a compliance memo that includes all parties who form entities on behalf of your firm or direct their formation. That might include outside counsel, internal stakeholders, and service providers. The memo should outline an approval and notification process for new formations so that all stakeholders are aligned

Next, establish a process to manage key events in the entity's lifecycle that may trigger new compliance obligations, such as changing the company’s name, obtaining a new assumed name (DBA), or updating beneficial owners, which could require filing an updated BOIR.

An entity management platform can help consolidate vital information about your entities into a single source of truth. With centralized data, you can also mitigate errors and inefficiencies. Consider partnering with outside counsel and your service provider to ensure new entities flow seamlessly into the entity management platform.

Entity formations and foreign registrations: BOI reporting requirements

There are different deadlines for filing the initial BOIR based on the formation or registration date of a reporting company:

• A domestic reporting company created before January 1, 2024, and a foreign reporting company registered to do business before January 1, 2024, must file by January 1, 2025.
• A domestic reporting company created, or foreign reporting company registered for the first time on or after January 1, 2024, and before January 1, 2025, has 90 calendar days after receiving actual or public notice of the company’s creation or registration to file its initial BOI report.
• Domestic reporting companies created on or after January 1, 2025, and foreign reporting companies registered for the first time on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective, to file their initial BOI reports with FinCEN.

In addition, reporting companies formed or registered on or after January 1, 2024, must report their company applicants.

Consider the following as you plan your entity formations and foreign registrations:

• Entity formation timing: It's important to consider when to form an entity, as it affects your BOI filing responsibilities. If you form the entity later in the transaction process instead of right away, it can reduce your reporting obligations, especially as to entities that are formed for transactions that aren’t ultimately consummated. This is because once you form a reporting company, it must file an initial BOI report even if it dissolves before the due date.
• Use consistent file naming conventions: For corporate and other related documents (pertaining to the entity or the BOI report), use consistent file naming conventions to ensure that these documents are identifiable and easy to find.
• Obtaining an EIN: Factor in the time it takes to obtain an EIN. If you apply for an EIN only, you are limited to a single EIN application per responsible party per day. Check out FinCEN’s FAQs on obtaining TINs.

Acquisitions, divestitures, spinoffs: How to ensure CTA compliance

As you navigate acquisitions, divestitures, and spinoffs, make certain your due diligence process includes CTA compliance. This includes assessing the applicability of the law, identifying exemptions, and understanding the timing of required CTA filings.

Consider the following:

• Set roles and responsibilities: When documenting a transaction, specify roles and responsibilities for filing initial BOI reports and updates, identifying beneficial owners, and keeping track of reported information. Make sure to include this information in the closing documents. For example, retain any CTA-related reports as part of the deal documentation and include them in virtual closing binders.
• Review all transaction documents: This includes rollover agreements, employment agreements, shareholder agreements, and operating agreements, to identify any necessary updates related to the CTA. These updates should aim to clarify the responsibilities of individuals who meet the definition of beneficial owner in providing beneficial ownership information. This will help you streamline the management of this information.
• Track timing for updated filings: Any changes to information reported about the company or its beneficial owners from a previous BOI filing will require the filing of an updated BOIR within 30 calendar days after the change. Examples of changes include a change in the reporting company’s legal name or principal place of business address, the registering of a new assumed (dba) name, or, changes to beneficial owners or the information reported about beneficial owners such as an address change. A reporting company that qualifies for an exemption after filing its initial report is also required to file an updated BOIR. A company that had been exempt, but that no longer qualifies, must file an initial report within 30 calendar days of it no longer being exempt.
• Spinoffs: If you sell a business unit, ensure that the closing documents specify who is responsible for filing an updated BOI report. And, if it is the new owner, be sure to follow up to guarantee the new owner files the update.
• Dissolutions and terminations: A reporting company that existed for any period on or after January 1, 2024, must file an initial BOI report, even if it dissolves and terminates its existence before its initial report is due. However, there is no requirement to report a company’s termination or dissolution. Review FinCEN’s FAQ on dissolved entities for more information.
• Review exemption qualifiers: For an inactive entity to be exempt from the CTA’s reporting requirements, it must meet six qualifiers:
  1. The entity was in existence before January 1, 2020.
  2. The entity is not engaged in active business.
  3. The entity is not owned by a foreign person, directly or indirectly, wholly or partially.
  4. The entity has not experienced a change in ownership in the past 12 months.
  5. The entity has not sent or received any funds in an amount greater than $1,000, either through a financial account in which the entity or any affiliate has an interest in the past 12 months.
  6. The entity doesn’t hold any assets, in the U.S. or abroad, including any ownership interest in any corporation, LLC, or similar entity.

Administratively dissolved entities and the CTA

Based on FinCEN’s guidance, if a reporting company is administratively dissolved or terminated (for example, for not filing reports or paying fees), it does not necessarily cease to exist. States usually allow for reinstatement within a specified time, so unless the dissolution is permanent, the company is still considered a legal entity. As such, if an administratively dissolved reporting company began the dissolution process but didn't finish before January 1, 2024, it is still an existing legal entity and must file a report.

In most jurisdictions, there are more administratively dissolved entities than those that meet the legal definition of a dissolved entity that has ceased to exist. To avoid confusion, FinCEN suggests checking state statutes to determine the rules for the timeframe in which an administratively dissolved company can be reinstated.

FinCEN’s goal is to prevent misuse of dissolution to avoid beneficial ownership reporting.

Expansion of states adopting beneficial ownership reporting

Some states also will soon require entities to disclose BOI to the state business entity filing office, such as the Secretary of State. To date, only the District of Columbia and New York have enacted such laws.

On March 1, 2024, New York’s Governor Hochul signed Senate Bill 8059, mandating that beginning in 2026 all LLCs (both those formed in New York and those formed outside of New York) doing business in New York need to file a beneficial ownership disclosure or an attestation of exemption with the New York Department of State.

Massachusetts, California, and Maryland also introduced bills that would require some form of BOI reporting, however, as of September 2024, none of those bills had been enacted, and Maryland’s bill died in committee.

Coming soon

Look out for the next article in this series, in which we discuss ongoing CTA compliance considerations for joint ventures.

Others in the series:

Corporate Transparency Act: Best practices for beneficial ownership information reporting

Learn more

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