Introduction

In recent years, governments across the United States have taken steps to enhance corporate transparency. The Corporate Transparency Act (CTA), enacted in 2020 as part of the National Defense Authorization Act for Fiscal Year 2021, seeks to combat illicit financial activities by imposing reporting and disclosure requirements on certain business entities. In North Carolina, these provisions of the CTA have significant implications for businesses operating within the state. And with the effective date of the CTA’s disclosure requirements (January 1, 2024) looming, it is critical that businesses and individuals in NC understand what will be required of them. This article delves into the reporting and disclosure requirements under the Corporate Transparency Act as they pertain to North Carolina, providing additional details on effective dates and obligations for businesses formed before and after those dates.

Understanding the Corporate Transparency Act

The Corporate Transparency Act was signed into law with the primary goal of increasing transparency in beneficial ownership of legal entities and preventing the misuse of shell companies for money laundering, fraud, and other illicit activities. The law is built on the premise that, by collecting “beneficial ownership information”, the Financial Crimes Enforcement Network (FinCEN) and other agencies will be in a better position to combat these issues. The CTA’s requirements do impose what could be substantial obligations and penalties for non-compliance on businesses and business owners, though the final rule published by FinCEN on September 30, 2022 (Final Rule), which implements the CTA’s beneficial ownership information reporting provisions, aims to minimize the burden on small businesses.

Reporting Companies

The CTA mandates that certain business entities report their beneficial ownership information to FinCEN. Business entities subject to these requirements, or reporting companies, include:

  • Corporations,
  • Limited liability companies,
  • Other similar entities formed under state law, such as limited partnerships, limited liability partnerships and limited liability limited partnerships created by filing organizational documents with the North Carolina Secretary of State.

Not every entity or business is subject to the CTA’s reporting requirements. Exemptions do apply, so assessing applicability will be an important step.

Reporting Requirements

Entities meeting the definition of “reporting company” are required to disclose information about individuals who directly or indirectly own or control the entity. This information typically includes their names, dates of birth, addresses, and social security numbers. More specifically, the Final Rule requires disclosure of individuals who (i) exercises substantial control over a reporting company, or (ii) owns or controls at least 25 percent of the ownership interests of a reporting company.

The Final Rule looks to a variety of factors for determining “substantial control”, which generally involves making decisions on behalf of the business, and “ownership interest”, including how the interest is owned. These terms and factors were written so as to cast a broad net and narrow the opportunity to avoid disclosure. For most NC businesses, however, control and ownership will be more straightforward than the outliers the Final Rule aims to capture, and most NC businesses should plan to comply with these requirements.

The Final Rule also requires that the businesses identify the company applicants of the entity. Company applicants include (i) the person who directly files the organizational documents with the North Carolina Secretary of State, and (ii) the person with primary responsibility for ensuring this document is filed. While the CTA applies to and requires disclosure of beneficial ownership information of entities formed both before and after the Final Rule’s effective date of 1/1/2024, reporting companies existing as of that date need not provide or update company applicant information.

Reporting companies must begin making these disclosures as of January 1, 2024. For entities formed prior to that date, they will have until January 1, 2025 to make the initial disclosure, while those formed after that date must make the disclosure within 30 days of formation. Moving forward, companies have 30 days to file updated or corrected reports upon any change or discovery of inaccuracy in the reported information.

Implications for North Carolina Businesses

The Corporate Transparency Act has far-reaching implications for businesses in North Carolina. Compliance with these reporting and disclosure requirements is not just a matter of regulatory diligence but a necessity to avoid legal repercussions. Failure to comply with the reporting requirements of the CTA can result in significant penalties. Both businesses and their legal advisors may face civil and criminal penalties, including monetary fines of $500 per day up to $10,000 and criminal penalties of up to two years for willful reporting violations and up to $250,000 and five years in prison for willful unauthorized disclosure or use violations.

To ensure compliance, businesses should consider the following steps:

  1. Determine Applicability: Assess whether business entities fall within the scope of the CTA’s reporting requirements.
  • Gather Beneficial Ownership Information: Identify and collect the necessary information about individuals who own or control the business entity.
  • Submit Reports: If required, submit the required beneficial ownership information to FinCEN by the specified deadline.
  • Stay Informed: Keep abreast of any updates or changes to the CTA’s reporting requirements, as regulations may evolve.
  • Seek Legal Guidance: Consult an experienced business lawyer for assistance in complying with the CTA.

Resources

FinCEN published the Small Entity Compliance Guide on September 18, 2023 to help business and entities comply with the CTA. This guide organizations preparing for compliance with the CTA. The purpose of this guide is to provide useful tools to understand and comply with the beneficial ownership requirements of the CTA. Additional resources – and further rulemakings from FinCEN – are forthcoming.  

Conclusion

The Corporate Transparency Act imposes significant but attainable requirements on businesses in North Carolina. With the commencement of the reporting period imminent, it is vital, therefore, that businesses and business owners in NC take the appropriate to ensure compliance, both in the initial required disclosures and moving forward.  This article highlights some of the key considerations, but is neither legal advice nor a guide or checklist. Consult a competent and experienced attorney today to help navigate the CTA’s transparency requirements.

JANUARY 2024 UPDATE:

The filing deadline for the required disclosures under the CTA has been amended for entities formed in 2024. This deadline is now 90 days after creation or registration, changed from the original deadline of 30 days from formation. For entities formed before 2024, the deadline for disclosure remains December 31, 2024, and for entities formed after 2024, the deadline remains 30 days after creation.

As for completing the disclosures, there is now a site for e-filing to complete the necessary disclosures: BOI E-FILING (fincen.gov). This link will take you to the page where you will complete the e-filing of the required beneficial ownership information and company organizer disclosures.

For additional information and resources, follow this link: United States Department of the Treasury Financial Crimes Enforcement Network | FinCEN.gov