The Corporate Transparency Act (CTA), enacted by Congress on January 1, 2021, is a significant shift in federal regulations impacting LLCs, corporations, and other business entities. If your business is filed with the Massachusetts Secretary of State, then there are important deadlines and requirements that you need to be aware of. In this legal blog post, we outline what the Act is and what it means for you, specific filing requirements and deadlines, and who is affected by this new change in the law.
The Corporate Transparency Act aims to combat illicit activities like money laundering, terrorism financing, tax evasion, and tax fraud by increasing transparency around who actually owns and controls companies operating within the United States. The Act requires entities to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a division of the United States Department of Treasury.
The new changes officially took effect on January 1, 2024. Any newly created entity that is formed by filing the necessary documents with the Massachusetts Secretary of State or a similar office must file what is called a Beneficial Ownership Information Report (BOIR) with FinCEN. For any domestic reporting company that was formed prior to January 1, 2024, the deadline to file an initial BOI report is January 1, 2025.
For any domestic reporting company, LLC, or corporation that is formed in the year 2024, a BOI report must be filed within 90 days of the entity formation becoming effective. Going forward, any entity that is formed or registered on or after January 1, 2025, the managing member(s) will have 30 calendar days to file an initial BOI report after the entity formation has become effective and one of public record.
The BOI Report must include:
A “beneficial owner” of each entity is (i) any individual who exercises “substantial control” over a reporting company (e.g., the president of a corporation, the manager(s) of an LLC, the Trustee of a Business Trust), and (ii) any individual who owns at least a 25% interest in the reporting company. The term “substantial control” is flexible and can refer to any individual that directs, determines, or exercises substantial influence over the important day-to-day business decisions that the company makes.
The new regulation applies to all “Reporting Companies” as defined by FinCEN. There are both domestic reporting companies and foreign reporting companies, but this legal blog will primarily focus only on domestic reporting companies. A domestic reporting company is defined as a corporation, limited liability company (LLC), or other entity that is formed by filing a document with a secretary of state or any similar office under the law of that given state. Certain companies, such as larger organizations with more than 20 employees and over $5 million in revenue, may be exempt, but the vast majority of small businesses must comply. There are 23 categories of entities that are exempt from the new reporting requirements of the CTA, for a full list of these exemptions you can view them directly on the FinCEN website.
Businesses that were formed prior to January 1, 2024 must file the required BOIR forms by December 31, 2024, and it is crucial to comply with this new requirement to avoid significant penalties. Failure to file or submitting false information can result in civil penalties up to $500 per day, as well as criminal fines up to $10,000 or even prison time for up to two years. Any entity that is formed or registered after January 1, 2025, the owners will have 30 calendar days to file an initial BOI before becoming subject to penalties.
Be advised that this new Act does not come with an annual reporting requirement. The new law only requires the initial BOI report be filed timely. However, if there is a change in the information that has already been filed pertaining to any beneficial owner, e.g., change of address, election of a new president, death of an owner, etc., then a new BOIR must be filed within 30 days after such change. Similarly if there is inaccurate information provided in the filing, the beneficial owner must correct this information within 30 days after the individual became aware of the inaccuracy.
For LLCs in Massachusetts, the Corporate Transparency Act introduces new regulatory responsibilities that must be complied with in order to keep your LLC in good standing, making it essential to stay informed. By working with an experienced legal professional such as Lane, Lane & Kelly, business owners can ensure timely filings and avoid legal and financial risks. As beneficial ownership transparency becomes a focus, staying proactive with compliance will protect businesses from costly penalties and ensure they remain in good standing with the Massachusetts Secretary of State’s office.
Do you have questions about the Corporate Transparency Act or you are unsure where to start? Or perhaps you are looking to start your own business and are unclear on how to navigate these new filing requirements in Massachusetts. The attorneys at Lane, Lane & Kelly have years of experience assisting businesses and business owners across the South Shore and all over the Greater Boston area. If you need assistance in your own business entity creation, or with maintaining ongoing compliance with this new Act, then please contact us today or stop by our office located at 836 Washington Street Braintree, Massachusetts today.
This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this blog you understand that there is no attorney client relationship between you and Lane, Lane & Kelly, LLP.