The year-end countdown is on - all companies must look at whether they are required to register or are exempt from registration. But navigating the complexities of the CTA can be overwhelming. Here is a practical guide on how to manage CTA compliance.

Compliance Analysis: Who and What Gets Reported and When?

Under the CTA, information about the reporting company, certain beneficial owners and company applicant is e-filed with the Financial Crimes Enforcement Network (FinCEN).

• "Reporting companies" are generally private, for-profit businesses with less than $5 million in revenue, less than 20 full-time employees and not otherwise already subject to oversight by a federal agency (e.g. financial institutions, public utilities and SEC-registered entities are exempt). Unless a company is one of the 23 specific exemptions, it must report.
• "Beneficial owners" are generally those who hold at least 25% ownership in a reporting company or otherwise exercise "substantial control" of the reporting company.
• "Company applicant" generally means the individual who made the filing that established the business as a separate entity (e.g. business owner, attorney, paralegal, etc) and if applicable, a second individual who directed the filing (e.g. business owner, attorney, accountant, etc). Reporting companies formed prior to 2024 are not required to report the company applicant.

A reporting company provides legal name, federal taxpayer ID, state of formation and U.S. address. A reported person and company applicant provide legal name, date of birth, current address and unique government-issued ID number (e.g. U.S. passport or state driver's license accompanied by an uploaded photo copy). These data points are referred to by FinCEN as "beneficial ownership information" (BOI).

Reporting companies formed on or after Jan. 1, 2024, must file initial BOI reports within 90-days of formation, decreasing to a 30-day window beginning Jan. 1, 2025. Reporting companies formed before 2024 have until year-end 2024 to file. Any change or correction to the initial BOI reports must be filed within 30 days after the date on which the change occurred or the error was discovered.

Setting Expectations: Responsibility for Accurate and Timely Filings

The responsibility for accurate and timely filings are both up-front and upon any change to the information initially reported to FinCEN.

It is best to manage the liability risks associated with inaccurate and untimely filings by requiring reported persons and company applicants to obtain their own FinCEN ID. The benefits of this approach are that it reduces time and expense (and potential errors) in initial BOI reports for each reported person and company applicant, and sets the expectation that each reported person and company applicant will assume responsibility for filing updates to the personal information associated with their FinCEN ID.

You can manage the liability risks associated with inaccurate and untimely filings by requiring reported persons and company applicants to obtain their own FinCEN ID. The benefits of this approach are that it reduces time and expense (and potential errors) in initial BOI reports for each reported person and company applicant, and sets the expectation that each reported person and company applicant will assume responsibility for filing updates to the personal information associated with their FinCEN ID.

By implementing this approach on matters involving reporting company filings, you provide instructions for each reported person and company applicant to obtain their own FinCEN ID. Upon receipt of each FinCEN ID, you can then file the reporting company’s initial BOI report with FinCEN and provide advice about the continuing obligation to file updated BOI reports reflecting any changes within the applicable time period.

Until or unless a federal court issues a nationwide injunction preventing FinCEN from enforcing the CTA, we are advising clients to continue taking steps towards compliance year end - and the countdown is on!

Our approach to CTA compliance was recently featured by the Ohio State Bar Association; click here to read more about what to expect from us in the coming months.