Understanding the Corporate Transparency Act: Shedding Light on Corporate Ownership

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Understanding the Corporate Transparency Act:

Shedding Light on Corporate Ownership

January 4, 2024

As part of the Anti-Money Laundering Act of 2020, the Corporate Transparency Act (CTA) went into effect on January 1, 2024. This new law requires most companies currently operating in the United States and most new companies created after January 1, 2024 to file Beneficial Ownership Information (BOI) reports in an online portal called FinCEN. Each existing business has until January 1, 2025 to file its first beneficial ownership information (BOI) report. Entities created in 2024 will have 90 days from the date of formation to file their initial BOI report. Entities created in 2025 or later will have 30 days from the date of formation to file their initial BOI report.

What is the Corporate Transparency Act?

Transparency in corporate ownership has long been a contentious issue, with the lack of information leading to concerns about money laundering, corruption, and illicit financial activities. In a significant stride toward addressing these concerns, the United States introduced the Corporate Transparency Act (CTA) to bring about greater clarity and disclosure in corporate structures. Its primary objective is to combat money laundering, terrorism financing, and other illicit activities by requiring certain corporations and limited liability companies (LLCs) to disclose information about their beneficial owners and controlling officers to the Financial Crimes Enforcement Network (FinCEN).

Key Provisions of the Corporate Transparency Act:

1. Beneficial Ownership Reporting: Companies falling within the scope of the CTA must disclose information about their beneficial owners. The term “beneficial owners” includes owners, senior officers, certain financial investors, and any others exercising control over the company. Companies will need to report the names, addresses, dates of birth, identification numbers, and copies of official identification for each of those individuals.

2. Enhanced Compliance Measures: Stricter compliance measures are in place, with hefty penalties for non-compliance or providing false information. The CTA provides for both civil and criminal penalties (up to $10,000 and two-years’ imprisonment) against a company for failing to report, willfully providing false information, failing to provide complete information, or failing to update information as required.

3. Access to Information: Law enforcement agencies, financial institutions, and federal agencies have access to the beneficial ownership information to conduct investigations and prevent financial crimes.

Who is Required to Comply?

Is your business the type of entity that needs to file a beneficial ownership information (BOI) report?

LLCs & corporations are required to file unless they qualify for an exemption. If you operate a partnership or another type of entity, please contact our firm to verify whether you are required to report.

Does your business qualify for an exemption?

The CTA lists 23 exemptions that may excuse a company from reporting. The majority of these exemptions are based upon the type of business—banks / credit unions, government entities, securities brokers, investment, venture capital, or insurance companies, accounting firms, public utilities, nonprofits, and subsidiaries of an exempt entity are all exempt from reporting. If you think your company may fall into one of these exempt categories, please contact our firm to verify whether you are required to report.

“Large operating companies” that meet the following criteria are exempt: (i) more than 20 full time employees in the US; (ii) an operating presence at a physical office in the U.S.; and (iii) filed a tax return for the previous year showing more than $5 million in gross receipts or sales from U.S. sources.“

“Inactive entities” that meet the following criteria are also exempt: (i) in existence on or before January 1, 2020; (ii) is not engaged in active business; (iii) is not owned by a foreign person; (iv) hasn’t changed owners in the last 12 months; (v) hasn’t sent or received funds in an amount greater than $1,000 in the last 12 months; and (vi) doesn’t hold any assets.

My business doesn’t qualify for an exemption. So what do I need to report?

Existing companies have from January 1, 2024 until January 1, 2025 to file their first beneficial ownership information (BOI) report. Entities created in 2024 will have 90 days from the date of formation to file their initial BOI report. Entities created in 2025 or later will have 30 days from the date of formation to file their initial BOI report. In short, you’ll need to report personal data about every individual who exercises control over the company.

The CTA says I need to report information about the “beneficial owners.” Who does that include?

Determining who needs to be included in the report can be complicated. The language used in the CTA makes it sound like only the owners of the company need to be included in the BOI report, but that is incorrect. Actually, the term “beneficial owner” used in the CTA includes all of the owners, the company’s senior officers, certain types of financial investors, and others as well. If you’re unsure who needs to be included, please contact our firm for help with that determination.

The CTA requires that the following persons be included:

1. every individual who owns 25% of your company’s ownership interests;

2. every individual who controls 25% of your company’s ownership interests—“control” can be direct or indirect and includes indirect influence through another company, a board, a trust, voting power, rights associated with financing, nominees, and control of intermediary entities, or any other contract, arrangement, or relationship;

3. every individual who substantially controls the company by serving as a senior officer, including any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function;

4. every individual who has authority over: (i) the appointment or removal of any senior officer, or (ii) the appointment or removal of the majority of the board of directors (or similar body); and

5. every individual who directs, determines, or has substantial influence over important decisions made by the company, including influence over: the transfer of assets, reorganization of the company, major expenditures, incurrence of debt, business ventures, compensation or incentives for senior officers, signatory authority, company policies or procedures, or any other form of substantial control over the company.

I need to file a report. What do I do next?

1. Decide if you want to file the report with FinCEN yourself or if you want the assistance of a third party, such as our law firm.

2. Determine who needs to be included in the report. Remember that this includes all owners, removed owners, senior officers, and anyone else who exercises substantial control over the company. If you have any questions about who needs to be included, please contact our firm for assistance.

3. Contact each individual to tell them that the Corporate Transparency Act requires your company to report personal information about them to FinCEN. Tell them they have the option to provide the information to the company or to apply to FinCEN after January 1, 2024 for their own FinCEN Identifier.

1. If they elect to provide the information directly to you, you’ll need the individual’s: legal name, date of birth, residential address, identifying number and issuing jurisdiction from a driver’s license, passport, or other authorized document, and an image of that document.

2. If they elect to apply to FinCEN themselves, then they’ll need to provide you with their FinCEN Identifier.

Either way, make sure you have a secure system in place to store personal information.

4. After Jan. 1, 2024, register for a FinCEN account and work with your attorney and CPA to complete the BOI report in the FinCEN portal. Remember, the first report is due by January 1, 2025 for existing entities, within 90 days of formation for entities formed in 2024, and within 30 days of formation for entities formed in 2025 or later.

5. Implement a company policy and procedure to make sure the information you must report will be kept up to date. Both so that it is current when you file your initial report and so that you are able to file the updated reports whenever the formerly reported information has changed.

Don't wait until it's too late—contact the law firm Richards Brandt Miller Nelson today to discuss how we can assist you in complying with the Corporate Transparency Act.

Sincerely,

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Description automatically generatedRichards Brandt Miller Nelson

Steven H. Bergman Matthew C. Barneck Cathy Campbell Alexandria Westover

Leveraging Data to Build a Better Business: The Benefits of Working with Dun & Bradstreet

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Dun & Bradstreet (D&B) is a leading provider of business information and analytics. Founded in 1841, the company has a long history of helping businesses succeed by providing them with the insights and data they need to make informed decisions.

D&B helps businesses in a number of ways. One of the primary services they offer is credit risk analysis. D&B maintains a database of millions of businesses around the world, and they use this data to help companies understand the creditworthiness of their customers and partners. This can be extremely valuable for businesses looking to mitigate risk and avoid financial losses.

In addition to credit risk analysis, D&B also provides a range of other services to help businesses grow and succeed. These services include marketing and sales solutions, supply chain management, and human resources support.

One of the key ways that D&B helps businesses is by providing them with access to a vast amount of data and analytics. This can include data on market trends, industry benchmarks, and key performance indicators. By leveraging this data, businesses can make more informed decisions about their operations, marketing, and strategy.

D&B is a trusted partner to businesses of all sizes, from small startups to large multinational corporations. The company's services are used by millions of businesses around the world, and they are consistently ranked as one of the top providers of business information and analytics.

In summary, Dun & Bradstreet is a leading provider of business information and analytics that helps companies succeed by providing them with the data and insights they need to make informed decisions. From credit risk analysis to marketing and sales solutions, D&B is a valuable resource for businesses looking to grow and thrive in today's competitive market.

Understanding Your Business's Burn Rate: What it is and Why it Matters

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Burn rate is a term used to describe the rate at which a business is spending its available cash. It is important to understand because it can provide insight into the financial health of a company and help predict its future viability.

The burn rate is typically expressed as the amount of money a business is spending per month. This can include expenses such as salaries, rent, marketing, and other operational costs. It is important to track the burn rate because if a business is spending more money than it is bringing in, it will eventually run out of cash and be unable to continue operating.

Calculating the burn rate is relatively simple. First, you need to determine the total amount of cash that is available to the business. This can be found on the company's balance sheet and includes cash on hand, as well as any short-term investments or other liquid assets.

Next, you need to determine the total monthly expenses for the business. This can include both fixed and variable costs, such as salaries, rent, and marketing expenses. It is important to include all expenses in the calculation, even if they are not paid on a monthly basis, as they will still impact the burn rate.

Once you have these two numbers, you can calculate the burn rate by dividing the total monthly expenses by the total available cash. For example, if a business has $100,000 in available cash and spends $10,000 per month, its burn rate would be 10%.

It is important to monitor the burn rate carefully, as it can provide valuable insight into the financial health of a business. A high burn rate can be a sign that the business is spending more money than it is bringing in, which can lead to financial trouble down the road. On the other hand, a low burn rate can indicate that the business is in good financial health and has plenty of available cash to fund its operations.

There are a few different strategies that businesses can use to manage their burn rate. One approach is to try to reduce expenses, either by cutting costs or increasing revenue. This can help lower the burn rate and improve the financial health of the business.

Another approach is to try to raise additional capital, either through investment or borrowing. This can provide the business with additional cash, which can help reduce the burn rate and improve its financial health.

Ultimately, understanding and managing the burn rate is crucial for any business. It can provide valuable insight into the financial health of the company and help predict its future viability. By tracking the burn rate and implementing strategies to manage it, businesses can improve their financial health and increase their chances of success.

Cost Cutting in a Changing Economy

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In today's economy, businesses need to be extra careful with their spending in order to maintain profitability. One cost-cutting strategy that can help business owners free up some extra cash is to implement a cost reduction plan. This typically involves looking at the business's overall cost structure and finding areas where costs can be reduced without negatively impacting the quality of the product or service.

Doing a deep dive P&L analysis to determine where your money is being spent is a great place to start. These days, most people have a handful of subscriptions they are paying for, some of which may be entirely unnecessary. Maybe there is a older software you haven’t used in some time you could easily cut. Entertainment services are also something to take a deep look at.

Further, a small business might look at its inventory levels and decide to reduce its safety stock in order to free up cash that can be used for other purposes. Or, a company might renegotiate its lease terms in order to get a lower monthly payment.

By carefully examining all areas of the business, it's usually possible to find ways to cut costs without sacrificing quality or efficiency. As a result, implementing a cost reduction strategy can be an effective way to improve the bottom line.

Do small businesses need an employee handbook?

Photo by Andrea Piacquadio.

Small businesses are the backbone of the American economy. They create jobs, drive innovation, and help to keep communities vibrant. However, running a small business is not without its challenges. One of the biggest challenges is managing employees. From hiring and training to managing payroll and benefits, there is a lot to keep track of. An employee handbook can help to make the process of running a small business a little bit easier.

An employee handbook is a document that outlines the rules and regulations of a business. It can cover everything from attendance and punctuality to dress code and internet usage. Having an employee handbook can be especially helpful for startup businesses. When starting a new business, it is important to set clear expectations from the beginning. An employee handbook can help to do just that. Employee manuals provide employees with a clear understanding of what is expected of them and can help to prevent misunderstandings down the road.

While an employee handbook is not required for small businesses, it can be a helpful tool for startups and established businesses alike. Small businesses that take the time to create an employee handbook can benefit from increased efficiency and happier employees.

Top 5 Reasons You Need Life Insurance

OK, let’s talk. I know, talking about life insurance usually isn’t the most fun thing to talk about, but it is one of the most important aspects of your financial plan if not the most important. Talking with an expert regarding these matters can surely help lighten the load with what is needed to make a good decision in these matters.

I have been very lucky to know and meet a lot of absolutely wonderful people from all walks of life. And with knowing many people, your chances go up with knowing more people that have passed away. It is always hard to see friends and family stress about money during trying times like this. Seeing many of these types of circumstances is one of the many reasons why I chose to get involved in the life insurance industry. I am passionate about helping people get prepared, so when the unexpected happens, family and friends will not have the financial stress that comes shortly thereafter.

This article will outline just 5 of many reasons why you should have life insurance as part of your financial plan.

     1. Funerals aren’t cheap.

According to the most recent data from the National Funeral Directors Association, the average cost of a traditional funeral, including embalming and a metal casket, is almost $6,600. From my research, that represents a more basic casket. Most statistics out there say it is usually closer to $10,000 and in many cases higher. Most people don’t have an extra $6k-$10k or more to dedicate to funeral costs so they usually have to draw money prematurely out of a 401-k, savings, fundraise for it or go into debt paying for it. Don’t leave it to your family to deal with the added stress of coming up with money to pay for the funeral.

2. Take care of business.

Life insurance is a very important part of the small and large business equation. Having been a business owner throughout my life, I can relate with the stress of wondering what would happen if the unexpected took place. Ask yourself some of these questions: What would happen if a key employee dies or becomes disabled? What happens to my business and my family if I die? What happens with the structure of the business if a business partner dies? These are just a few things to think about when owning a business and to take the proper steps in protecting yourself and those dependent upon you.

3. Supplement retirement.

How do you supplement retirement with life insurance you may ask? Certain life insurance policies (Whole Life) in particular, have both a death and a living benefit. These types of policies can accumulate cash that can be borrowed at a later time for cash needs. These types of policies are also usually protected from creditors, have a premium payment that is guaranteed to never increase, tax-free access to your funds as well as a myriad of other features and benefits.

4. Peace of mind.

Having a life insurance plan gives you the piece of mind that whatever happens to you, that you have a plan in place to care for loved ones that are left behind. You can also allocate some of the proceeds to your favorite charity if you wish. Just knowing that business will be taken care of and that you are leaving a legacy behind is a good feeling to have.

5. Nobody gets out of this world alive.

My grandmother used to say this and it made light of a sad situation. With this obvious knowledge, it is nice to have a plan in place that will not only take care of funeral expenses, but also pay off debts, a mortgage, take care of rent for a couple of years, pay for a college education, and the list goes on. In addition, life insurance is usually a lot cheaper than you think.

Don’t hesitate on getting something set up to protect the people you love. It can make all the difference in the world.

Do You Have Trusted Advisors On Your Team?

Every business owner needs a team of trusted advisors.

If you’re a business owner, you are used to wearing a lot of hats. Still, you can’t be an expert at everything, which is why it’s important to build a network of trusted professionals that you can turn to for help whenever the need arises.

No matter how successful you are, there are plenty of reasons to establish a professional network. In addition to exchanging contacts and referrals, there’s also the opportunity to share ideas and receive free advice from specialists in their field. And, much like getting a second opinion on a medical procedure, your network can act as a system of checks and balances by making sure you weigh all your options.

Ask yourself: Whom should you invite to be part of your network? While the members may vary depending on your strengths and weaknesses, your team should probably include some—or all—of the following professionals:

Attorney: Unless you have in-house council or a legal background yourself, an attorney—especially one with some experience in your industry—is almost a necessity. Among other things, an attorney can help defend you and your company from potential lawsuits, review contracts, and help with succession planning.

Accountant: While most people only use their accountant during tax season, business owners will find that an ongoing relationship can save them money in the long run. Not only can an accountant keep you from running afoul of the IRS, they can also show you how to structure your business and become a more tax-efficient operation.

Banker/Financier: As we all know, cash flow is the lifeblood of any business. And in today’s restrictive lending environment, having a banker in your corner can be a real boon. By providing easy access to credit, or letting you hear about the most favorable rates, a banker can be an invaluable addition to your team.

Insurance agent: A professional insurance agent can help you prepare for a number of critical business issues. Specifically, an insurance agent can help your business overcome the loss of a key employee, enhance your executive benefit package, fund a buy-sell agreement, and protect your family’s future by insuring your business interests.

As you can see, there are a host of advantages to creating a network of professionals with expertise in their field. Best of all, it’s a win-win for all parties, so setting one up may be easier than you think.