The Corporate Transparency Act – What does your Association need to know?
Money laundering, tax fraud, and terrorism – all of these make for riveting TV dramas and major headlines, but they undoubtedly present genuine threats to national security and economic integrity. To help combat these issues domestically, Congress contemplated legislation that would provide an investigative tool to target the vehicle often used to perpetrate these criminal acts: corporate entities, specifically small businesses. Enter the Corporate Transparency Act, which requires that certain eligible corporations must report certain information about their ownership to the Financial Criminal Enforcement Network (or FinCEN, for short).
What is the Corporate Transparency Act?
Effective January 1, 2024, the Act requires that corporations report and keep current the identity of any “beneficial owners” of the corporation. A “beneficial owner” is any natural person who exercises “substantial control” over a corporation, or who owns or controls at least twenty-five percent (25%) of the ownership or voting interest in the corporation. The deadline for filing the initial report varies by when the corporation was formed. Specifically:
- Corporations formed before January 1, 2024, must submit their initial report to FinCEN by December 31, 2024.
- Corporations formed on or after January 1, 2024, but before January 1, 2025, will have ninety (90) days from the date they receive notice of their creation or registration to submit their initial report.
- Corporations formed on or after January 1, 2025, will have thirty (30) days from the date they receive notice of their creation or registration to submit their initial report. After the initial report is submitted, corporations will have an ongoing duty to update the report with any changes, including correcting any inaccurate information that was previously reported. The deadline for submitting updated reports is thirty (30) days from the date the corporation has reason to become aware of the change or inaccuracy. Failure to comply with the Act carries significant repercussions: namely, a civil fine of up to $500 per day (for a maximum fine of $10,000), and/or imprisonment of up to two years.
Does it apply to community associations?
As always, it depends; specifically, on the structure of the Association. Considering how new the Act is, it is presently unclear how courts will interpret what a “beneficial owner” is in the context of community associations. The Act defines “substantial control” as an individual who:
- Serves as a senior officer of the corporation;
- Has authority over the appointment or removal of any senior officer or a majority of the Board of Directors (or similar body);
- Directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:
o The sale, lease, mortgage, or other transfer of any principal assets of the corporation;
o The reorganization, dissolution, or merger of the corporation;
o Major expenditures, investments, equity, debt, budgets;
o Entry into or termination of contracts;
o Amendments to governing documents - Has any other form of substantial control over the reporting company?
It is uncommon that a single owner or member would own 25% of the interest in the community – however, the collective decision-making authority of the Board of Directors may be interpreted to fall under the “substantial control” provision. It therefore may be wise to consider registering Board members as “beneficial owners” (and filing updated reports whenever there are changes in the makeup of the Board). However, there are some exceptions: a corporation – community association or otherwise – will not need to submit a report to FinCEN under the following conditions: - Corporations that are tax exempt, such as a 501(c);
- Corporations that have more than twenty (20) full-time employees and have annual gross revenues of over $5,000,000;
- Corporations that existed on or prior to January 1, 2020, are inactive, have not seen any change in ownership in the last twelve (12) months, have not sent or received any funds greater than $1,000 in the last twelve (12) months, and currently hold no assets. Consult with your attorney and accountant to confirm whether any of these exceptions apply to
you.
If my Community Association is not exempt, what will I need to do?
The federal government has created an online portal for submitting the required information, which you can find here: https://www.fincen.gov/boi. FinCEN will require the following information: For every individual that is a “beneficial owner”, you will need to provide:
- Their full legal name;
- Their date of birth;
- Their current address (Note: it cannot be a P.O. Box);
- A non-expired, government-issued identification number; such as a passport, driver’s license, or tribal identification card.
You should keep good records and monitor changes in the corporate structure of the association, such as when new Board members are elected. Be sure to inform your attorney of any such changes, so that they can assist in calendaring and preparing updated reports within the deadline for updates and inaccuracies. You should also have a discussion with new members, Board or otherwise, about the Act’s reporting requirements.
The legal landscape is constantly changing, and with change comes uncertainty. Our office is always available to provide guidance, so please feel free to contact us for more information.
Note: This article is intended to provide general information and should not be considered a replacement for legal advice. If you are facing a legal issue pertaining to the information presented above, we encourage you to seek guidance from competent legal counsel. No attorney-client relationship exists until/unless a representation agreement with our firm has been executed by both client and firm.
To review RPG’s summary of the Corporate Transparency Act in PDF format, please click the link below:
