Congress passed the Corporate Transparency Act (CTA) in January 2021 to provide law enforcement agencies with further tools to combat financial crime and fraud. The CTA requires certain legal entities (each, a “reporting company”) to report, if no exemption is available, specific information about themselves, certain of their individual owners and managers (“beneficial owners”), and certain individuals involved in their formation (“company applicants”) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury.
In certain states, including Florida and Michigan, condominium and homeowner associations are commonplace. Such associations are “reporting companies” under the CTA, and there may not be an exemption for them.
Management firms that assist and manage such associations are also “reporting companies” under the CTA, and unless they qualify for a “large operating company” exemption based on their employee numbers and revenue, there may be no exemption available for these entities.
These associations and other reporting companies formed on or after January 1, 2024 will need to comply with the CTA’s new reporting requirements in 2024, and those companies in existence before January 1, 2024 will have to file an initial report on or before January 1, 2025.
The required disclosures include:
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- For the “reporting company” itself, basic corporate information such as full legal name, all fictitious names, complete address, state of formation, and taxpayer identification number;
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- For each “beneficial owner” of the entity, which in the case of associations may include directors and officers (full-time, part-time or volunteer), community association managers and agents of third-party management firms, each such individual’s full legal name, date of birth, residential address, and information from (along with an image of) the individual’s unexpired U.S. passport, state driver’s license or other government-issued identification document; and
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- For each “company applicant” of an entity formed on or after January 1, 2024, which would include any person who filed or directed the filing of a document creating the entity, substantially the same disclosures required of a beneficial owner.
Reporting companies will also be required to file updated reports within 30 days of any change to the reported information and must promptly correct any inaccuracies in their disclosure to avoid penalties.
Community association managers, boards of directors and management firms should prepare now and familiarize themselves with the CTA’s new reporting requirements, as fines of $500 per day can be levied for failure to timely comply with the new reporting requirements. Criminal penalties (including imprisonment) are also available to regulators in certain circumstances, including where a person willfully fails to file the required reports.
Varnum’s Corporate Transparency Act Taskforce of attorneys and other professionals can assist you. Our CTA Taskforce recently published an advisory explaining the CTA reporting requirements, and we are hosting a complimentary webinar on Wednesday, November 8 to address the requirements in further detail.
Please contact your Varnum attorney or any member of Varnum’s CTA Taskforce if you have any questions about how the Corporate Transparency Act may impact you.