Ansell Grimm
February 13, 2024
By Nicole D. Miller and Melanie J. Scroble
Most entities that own commercial property, as well as homeowner and condominium associations (“Community Associations”), are among the over 36 million other American businesses and organizations that must now provide the federal government with detailed information about their ownership and controlling interests.
That is because the Corporate Transparency Act (CTA), which became effective on January 1, 2024, mandates that all “Reporting Companies” covered by the law disclose “Beneficial Ownership Information” (BOI) to the Financial Crimes Enforcement Network (FinCEN) division of the U.S. Treasury Department.
With an effective date of January 1, 2024, and with mandatory reporting deadlines approaching, commercial property owners and Community Associations need to understand what obligations, if any, they have under the CTA, whether they are a covered “Reporting Company,” and what information they need to provide FinCEN by the applicable deadline.
What Is the Corporate Transparency Act?
Signed into law in 2021, the CTA is part of an expansive federal government effort to crack down on illegal money laundering and “the use of shell and front companies by illicit actors who use them to obfuscate their identities and launder ill-gotten gains through the United States.” Unlike most federal regulatory schemes that primarily apply to larger companies, the CTA targets “smaller, more lightly regulated entities,” according to FinCEN. This focus on small entities is one reason FinCEN estimated that 90% of businesses and organizations in the U.S. are subject to the CTA’s disclosure requirements.
Almost All Property Owning-Entities and HOAs Are Covered “Reporting Companies”
Subject to significant exceptions, as discussed below, a “Reporting Company” that must comply with the CTA is any corporation, limited liability company, or any other entity created by filing a document (e.g., Articles of Incorporation) with a secretary of state or equivalent agency. Entities like general partnerships or sole proprietorships that can be established without such filings are not subject to the CTA’s disclosure and reporting requirements.
Accordingly, individuals and general partnerships that own commercial property have no obligations under the act. But, unless they fall within one of the listed exceptions, all other property-owning entities will need to provide their BOI to FinCEN.
Most Community Associations are “Reporting Companies” under the act since they are usually organized by filing articles of incorporation with a secretary of state. Their tax-exempt status under Section 528 of the Internal Revenue Code does not spare Community Associations from their reporting obligations. While the CTA specifically exempts 501(c) non-profit organizations from reporting requirements, it does not exempt Section 528 organizations.
Entities Excluded From the CTA’s Reporting Requirements
Most entities excluded from the CTA’s reporting requirements are already subject to beneficial ownership reporting and disclosure obligations under other laws, so filing such disclosures under the CTA would be redundant.
As stated in Section(a)(11)(B) of the CTA, these entities do not have to comply with the CTA’s BOI reporting requirements:
- Banks.
- Bank holding companies.
- Credit unions.
- Insurance companies.
- Issuers of securities registered under Section 12 of the Securities Exchange Act of 1934 or that must file supplementary and periodic information under Section 15(d) of the 1934 Act.
- Brokers, dealers, and any other entities registered with the SEC under the 1934 Act.
- Registered investment advisors under the Investment Advisers Act of 1940.
- Public accounting firms.
- Companies employing more than 20 people full-time in the U.S. or that filed a federal income tax return in the prior year showing more than $5 million in gross sales or receipts and have an operating presence in the U.S.
- Any entity that:
- Has existed for over one year.
- Has not sent or received funds over $1,000 or experienced an ownership change in the previous 12 months.
- Is not actively engaged in business.
- Is not owned by a foreign individual.
and
- Does not otherwise hold any assets, including ownership interests, in any corporation, limited liability company, or other entity.
Disclosures Required About “Company Applicants” and “Beneficial Owners”
In addition to basic corporate information such as name, address, and tax ID number, Reporting Companies must provide FinCEN with BOI about two groups of individuals: “Company Applicants” and “Beneficial Owners.”
As defined in the Final Rule, a “company applicant” is “the individual who directly files the document that first creates the domestic reporting company” and “the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.” Effectively, the person who filed the documents required to create the entity will be considered the “Company Applicant,” whose BOI must be reported.
Notably, the reporting of applicant information only applies to Reporting Companies created from and after January 1, 2024. Such new Reporting Companies need not provide FinCEN with updates regarding Company Applicant information after their initial disclosure.
“Beneficial Owner” = 25% Ownership OR “Substantial Control” Over Entity
All Reporting Companies must disclose information about their “Beneficial Owners.” As defined in the Final Rule, a “Beneficial Owner” is any person who, directly or indirectly, either:
- Owns or controls at least 25% of a reporting company’s ownership interests; or
- Exercises substantial control over a reporting company.
Importantly, ownership interests through intermediary entities qualify as ownership of a Reporting Company. As specified in the Final Rule, a person may be deemed a beneficial owner “through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.”
“Substantial Control”
Determining whether a person exercises “substantial control” over an entity so they are considered a “Beneficial Owner” involves an analysis of the person’s actual authority and the actions they are empowered to take on behalf of an entity. Under the Final Rule, an individual has “Substantial Control” over an entity if they:
- Serve as a senior officer of the entity.
- Have authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body) of the entity or
- Direct, determine, or have substantial influence over important decisions made by the entity, such as:
- Entry into and termination of contracts.
- Acquisition, sale, or lease of the company’s principal assets.
- Reorganization, dissolution, or merger.
- Selection or termination of business lines or venture.
- Amendment of any governance documents of the reporting company.
For Community Associations, this means that the voluntary members of the board of directors or board of trustees will be considered individuals with “substantial control” over the covered entity, i.e. the association.
Information That Must Be Reported to FinCEN
Non-exempt Reporting Companies must provide FinCEN with the following information regarding individuals who qualify as Company Applicants or Beneficial Owners:
- Full legal name.
- Date of birth.
- Street addresses (identified as a current residential or business street address).
- Non-expired state identification document or passport.
Reporting Deadlines
As noted, the CTA’s compliance deadlines largely depend on when the “Reporting Company” was formed.
- Entities Formed in Calendar Year 2024: Covered Reporting Companies created or registered on or after January 1, 2024, and before January 1, 2025, must submit their BOI report within 90 days after the date of the entity’s formation (i.e., the filing date of its Articles or Certificate).
- Entities Formed Before January 1, 2024: Covered Reporting Companies formed before 2024 must report their BOI on or before January 1, 2025.
- Entities Formed on or After January 1, 2025: Covered Reporting Companies formed after 2024 must file their BOI within 30 days after its date of formation.
Penalties for Non-Compliance
Commercial property owners and Community Associations that fail to comply with the CTA’s reporting requirements face significant penalties. Any entity or person that “willfully provides, or attempts to provide, false or fraudulent information or willfully fails to report when required” faces civil penalties of $500 per day, criminal fines of up to $250,000, and a maximum of five years in federal prison.
Given the complexities in determining an entity’s beneficial ownership and non-compliance consequences, property-owning entities and Community Associations should consult with experienced counsel to ensure they satisfy any reporting obligations under the CTA. For further information and assistance with your entity’s CTA compliance, please contact one of the attorneys in Ansell Grimm & Aaron’s Commercial Real Estate or Community Association practice groups.
