Overview of the Corporate Transparency Act
Who is Affected?
- Domestic corporations, limited liability companies, or other entities created by filing with a secretary of state’s office, other similar office or Indian tribe.
- Foreign companies registered or registering to do business in a U.S. state or Indian tribe.
Who is Exempt?
- Large operating companies that meet specific criteria: (a) Employing more than 20 full-time employees in the U.S.; (b) filing a federal tax return reporting more than $5 million in gross receipts or sales; and (c) maintaining an operational presence in the U.S.
The Challenge for Real Estate Developers
Key Reporting Requirements
- The company’s name, business address, state of formation, and IRS Tax Identification Number.
- Information about each “beneficial owner and “company applicant”, including their legal name, birthdate and a copy of an acceptable identification document (such as a passport), along with its unique identification number and issuing jurisdiction.
- Entities formed or registered before January 1, 2024, must file their initial reports by January 1, 2025.
- Entities formed or registered after January 1, 2024, have 90 days post-registration to file initial reports.
- Reporting companies must also update their reports within 30 days of any changes and correct inaccuracies within 30 days.
The Beneficial Ownership Secure System (BOSS)
Penalties for Non-Compliance
- Civil penalties of up to $500 per day for ongoing violations.
- Criminal penalties including fines up to $10,000 or imprisonment for up to two years.
Action Plan for Real Estate Developers
- Assess Your Entities: Identify whether any of your entities are “reporting companies” under the Act.
- Gather Necessary Information: Collect required details for your entities and their beneficial owners and company applicants.
- Stay Informed: Keep up with updates regarding the BOSS portal and any legislative changes.
- Implement Compliance Procedures: Establish systems for identifying beneficial owners and company applicants, maintaining records, and submitting timely reports.
- Review Bylaws and Operating Agreements: Review company bylaws and operating agreements and consider amending the same to require beneficial owners and company applicants to comply with providing and updating information. Also consider adding indemnification provisions for their failure to do the same.
- Consider Change of Structure: Consider changing the structure of holding companies to qualify them as large operating companies. For instance, perhaps move employees of a subsidiary to the holding company to meet the 20-employee threshold.
- Seek Professional Advice: Consult with legal experts to navigate the Act’s complexities and ensure compliance.
The Corporate Transparency Act represents a significant shift in the regulatory environment for most companies doing business in the United States, especially real estate developers, emphasizing transparency and diligence in reporting corporate ownership.
While it introduces new challenges, it also presents an opportunity to reinforce the integrity of your business practices. Proactive engagement, thorough preparation, and expert consultation are key to navigating this new landscape successfully.