As proprietary schools continue to navigate evolving issues in regulatory compliance, one critical regulatory change warrants your attention: the Corporate Transparency Act (CTA), which takes effect on January 1, 2024. At McClintock and Associates, we recognize that institutions like yours may be affected by this new law, which requires certain businesses to report their beneficial ownership information (BOI) for people who own or control the company.
The CTA was enacted to promote transparency in business ownership and prevent misuse of companies for illegal activities such as money laundering and terrorism financing. With an estimated 32 million businesses expected to comply, it’s important for proprietary schools to understand how this requirement may apply to their unique structure and operations.
The Scope of the CTA: Who Needs to File?
Does the Corporate Transparency Act apply to your institution?
The CTA applies to organizations organized both inside and outside the U.S., registered to do business in the U.S. This can include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with any state office under the law of a state.
Foreign companies registered to do business in the U.S. through any state jurisdiction are similarly subject to the requirement.
Who is a Beneficial Owner Under the CTA?
Under the Corporate Transparency Act, beneficial owners are defined as individuals who either exercise substantial control over the company or own at least 25% of it. Control can take many forms, including the ability to make key business decisions or manage senior-level operations, even without direct ownership.
These definitions include any senior officers of the reporting company, regardless of formal title. They may have no ownership interest in the reporting company. Read the detailed CTA regulations for full definitions of the terms “substantial control” and “ownership interest.”
Who is Exempt from CTA Reporting?
Not every company is subject to CTA reporting rules. Entities that are not created through state registration processes, such as certain sole proprietorships, are generally exempt. Additionally, the CTA provides a list of 23 categories of businesses that do not need to file.
This includes:
- Publicly traded companies
- Financial institutions
- Public accounting firms
- Certain “large operating entities” defined as having:
- More than 20 employees
- Over $5 million in revenue
- A physical presence in the U.S.
Keep in mind, these exemptions apply to certain highly regulated businesses that already report on BOI to the government.
Key Deadlines and Filing Requirements
Starting in 2024, businesses will need to submit their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The deadlines for filing vary depending on when the entity was created or registered:
- New entities formed after January 1, 2024, have 90 days to file, while those formed after December 31, 2024, must file within 30 days.
- Existing businesses, those created before January 1, 2024, have until January 1, 2025, to comply.
- If there’s a change in ownership or information, updates must be filed within 30 days.
Failure to meet these deadlines can lead to significant penalties. Companies that willfully ignore these requirements could face fines of up to $500 per day, totaling up to $10,000, as well as potential jail time.
What is Included in a CTA Beneficial Ownership Information Filing?
Filing under the CTA includes:
- Your business’s legal name
- Any trade/DBA names
- Business address
- IRS taxpayer identification number
- Beneficial owner information such as full name, date of birth, residential address, and an image of a government-issued ID (e.g., passport or driver’s license)
Avoiding CTA Non-Compliance Risks
Due to the nature of these rules, McClintock and Associates cannot assist directly with the legal filings related to the CTA. If you are uncertain about navigating this new requirement, we recommend hiring an attorney who can assist with these rules and filings.
However, we are here to help you understand the broader business implications and ensure your other compliance and reporting obligations are in order. For any questions about how this might impact your specific situation, please don’t hesitate to reach out.
