April 04, 2024
Does Your Law Firm Have New Reporting Requirements under the Corporate Transparency Act?
The Corporate Transparency Act (“CTA”), effective January 1, 2024, includes new potential reporting requirements and rules for California law firms and for their clients. In general, the CTA is a new federal reporting requirement for companies to provide Beneficial Ownership Information (“BOI”)—the individuals who ultimately own or control the company— and “company applicants”—the individual who directly filed the document that created the reporting company and/or the individual who was primarily responsible for directing or controlling the filing of the creation or first registration document—in a new report to the Financial Crimes Enforcement Network, or FinCEN, a bureau of the U.S. Treasury.
The first step to ensuring proper compliance with CTA is to assess whether your law firm is a reporting company. If so, next calculate the deadline for reporting requirements. Then, assess what information must be reported and under what circumstances the information has to be updated or amended.
Who has new reporting requirements under CTA?
Your firm may need to report information about your firm’s beneficial owners if it is:
• A corporation, a limited liability company (LLC), or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe. This generally would include law firms that are limited liability partnerships or professional corporations; or
• A foreign company registered to do business in any U.S. state or Indian tribe by such a filing.
There are exceptions to the definition of reporting company, although they tend to apply only to larger firms (for example, an operating presence at a physical office in the U.S. with gross revenues exceeding $5 million and more than 20 employees) or to companies that already report ownership information to other government agencies.
What are the reporting deadlines under CTA?
The deadline for filing the initial BOI report for reporting companies to report under CTA generally depends on when your firm was formed:
• For firms created or registered before January 1, 2024, the reporting deadline is January 1, 2025;
• For firms created or registered on or after January 1, 2024, and before January 1, 2025, the reporting deadline is 90 calendar days after the firm received actual notice that the registration was effective; and
• For firms created or registered on or after January 1, 2025, the reporting deadline will be 30 calendar days after actual notice that the registration is effective.
A person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.
What must be reported under CTA?
Reporting companies must report beneficial owners, meaning any individual who, directly or indirectly:
• Exercises substantial control over a reporting requirement; or
• Owns or controls at least 25% of the ownership interests of a reporting company, which may include capital or profits interests.
Reporting companies created on or after January 1, 2024, also must report company applicants, meaning:
• The direct filer of the firm’s registration materials; and
• Any individual who directs or controls the filing action.
This would include lawyers, paralegals, or company staff who actually handle or oversee the filing of the registration materials.
A reporting company must report its full legal name, any trade name, complete current U.S. address or foreign jurisdiction information, and IRS taxpayer identification number or EIN, among other things. Each beneficial owner and company applicant must report similar information as well as provide a passport or other identification number and image, among other details.
What updates or amendments are necessary under CTA?
Beneficial ownership information reporting is not an annual requirement. Unless a company needs to update or correct information, a report only needs to be submitted once.
Many California law firms will be reporting companies under CTA, and each should assess their reporting requirements, applicable deadlines, and what information must be reported. Consult the FinCEN Small Entity Compliance Guide for an overview of the new reporting requirements. Then, consult your legal counsel or advisors to determine your firm’s specific reporting requirements and deadlines.
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