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December 8, 2023

Starting on January 1, 2024, the Corporate Transparency Act will require mandatory beneficial ownership information (BOI) reporting requirements for statutorily created business entities, including law firms and attorneys. The purpose of this change is to aid the United States Government in policing criminals who use the corporate personal liability shield to hide their identities and launder money through the U.S. financial system, thus compromising U.S. national security and economic prosperity.


What are the reporting requirements?

“Beneficial ownership” is defined in this case as any individual who either directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests. Under the act, entities must report the following information for each beneficial owner: (1) full legal name, (2) date of birth, (3) address (residential if an individual), and (4) proof of identification.

A reporting company created or registered to do business prior to January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial report. These reports will be accessible upon request to federal, state, local, and tribunal officials as well as approved foreign officials who formally request the information in connection with activities related to national security, intelligence, or law enforcement.


What does this mean for attorneys?

Lawyers are not exempt from the BOI reporting requirements and therefore have an independent duty under the CTA to report. Therefore, these changes raise several ethical considerations including the lawyer’s duty to conduct due diligence, how and when disclosure is necessary when a lawyer forms a business entity on behalf of a client, and balancing the duties owed to the client while still protecting themselves from regulatory action and personal liability.


Are any businesses exempt?

A “large operating entity,” defined as a business that: (1) employs more than 20 full-time employees within the U.S., (2) has an operating presence at a physical office within the U.S., and (3) filed a federal income tax or information return in the U.S. for the previous year demonstrating more than $5 million in gross receipts or sales, is exempt from the BOI reporting requirements.


What are the penalties for failing to report?

Any person who provides false information or fails to comply with the reporting requirements is liable for civil penalties of no more than $500 for each day the violation continues. Violators are also subject to criminal penalties of imprisonment of up to two years and fines of up to $10,000. Failure to comply with the CTA could have other adverse consequences – potential purchasers in a merger and acquisition will most likely consider whether the company is a reporting company and whether it follows the CTA requirements.


What does this mean more broadly?

The changes in the BOI reporting requirements will create additional filing and reporting requirements that statutorily created business entities must be cognizant of in order to avoid liability, but it will also equip the government with the tools necessary to stop and catch money laundering schemes that harm the American public. Some states are considering implementing similar transparency rules in response to the updated requirement, some of which would include a publicly accessible database.