Corporate and Securities

Breaking Bad? Navigating the Corporate Transparency Act for Small Business Owners and Commercial Real Estate Investors

By
Brooks Brasfield

In the popular television shows “Breaking Bad” and “Better Call Saul,” characters Walter White and Gustavo Fring cleverly launder money through an elaborate network of shell companies, turning dirty money into “clean” investments in a car wash, regional fast-food chain, and commercial laundry. Although purely fictional, these plots provide a stark depiction of the very real and complex financial schemes that the Corporate Transparency Act (CTA) seeks to prevent.

In 2021, Congress passed the Corporate Transparency Act (CTA), directing the Financial Crimes Enforcement Network (FinCEN) to establish a national registry for beneficial owners of U.S. business entities. Effective January 1, 2024, under FinCEN's final Reporting Rule, subject to limited exceptions, corporations, LLCs, partnerships, trusts, and other entities registered with state authorities are required to disclose their beneficial ownership information (BOI) to FinCEN. As a small business owner or commercial real estate investor, particularly where your business utilizes complex organizational structures with multiple entities, it is imperative to understand the CTA’s impact on your operation.

To understand the impact, it’s important to first define what constitutes a beneficial owner under the CTA. A beneficial owner is anyone holding more than a 25% ownership interest or who exercises substantial control over the entity. BOI reports include detailed information about the beneficial owner and a company applicant, each of whom must submit their full name, date of birth, address, and an identification number from a document like a passport or driver’s license.

Businesses established prior to 2024 have until January 1, 2025 to report, while entities formed January 1, 2024 or later, however, must report within 90 days of their creation. The reporting requirement is also ongoing: reporting companies must submit an update within 30 days of any change of BOI. Failing to comply can result in steep penalties: civil fines of up to $500 per day, up to $10,000, and the possibility of criminal prosecution.

Back to Walter White and Gustavo Fring’s entrepreneurial endeavors: Imagine that Walter's car wash or Gustavo’s fast-food chain were actual businesses today. (No spoilers here!) Assume both entities were established in 2010. Both would have until January 1, 2025 to file their BOI report. Conversely, if Gustavo were to expand his fast-food empire and go under contract on a new location with a newly formed special purpose entity today (January 29, 2024), he would have 90 days to file. If Walter opened a new car wash and formed a new LLC on December 31, 2023, however, he has until January 1, 2025 to file for that entity. Even for fictional drug kingpins posing as legitimate businessmen, the path to CTA Compliance can be daunting.

Fortunately, legitimate businesses don’t have to navigate the complexities of the Corporate Transparency Act alone. Thompson Burton PLLC stands ready to provide expert guidance through every step of the reporting process. We offer a comprehensive range of services to support your compliance journey, from determining your reporting duties to compiling the necessary data and managing submissions toFinCEN. Our counsel is custom-fit to your specific legal structure, ensuring thorough compliance and mitigating legal exposure.

 

FAQ: Navigating the Corporate Transparency Act

 

1. Does the CTA apply to all businesses?

The CTA applies to corporations, LLCs, partnerships, and other entities that are created by filing a document with a secretary of state or a similar office. There are exemptions for certain entities, such as publicly traded companies, banks, credit unions, and others that already have strict reporting requirements.

2. What specific information must be reported?

You'll need to report the name, date of birth, address, andan identifying number (like a passport or driver’s license number) for each beneficial owner.

3. How often is updating FinCEN required?

You must submit an update within 30 days of any change inbeneficial ownership information.

4. What are the consequences of non-compliance?

Failing to report accurate information or willfully providing false or fraudulent information can result in civil penalties up to $500 per day that the violation continues, and criminal fines of up to $10,000, and/or imprisonment for up to two years.

5. How does the CTA protect my privacy?

Although the CTA requires disclosure of personal information, FinCEN is required to maintain strict confidentiality of the reported information, with limited exceptions for law enforcement and regulatory purposes. 

6. Is legal assistance necessary for CTA reporting?

While it's not mandatory, legal counsel can help you navigate the complexities of the CTA, ensure accurate reporting, and maintain compliance to avoid penalties.

 

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