Originally published in Utah Physician Magazine, Dec 2023/Jan 2024
As a physician, you likely formed a corporation, limited liability company, limited partnership or other business entity to protect your personal assets from the liabilities and creditors of your practice. Or you have perhaps formed an entity to hold your office building or equipment for personal estate planning purposes. Your formation of such entities likely requires you to provide certain disclosures under the Corporate Transparency Act beginning January 1, 2024.
The Corporate Transparency Act was passed by Congress as part of the Anti-Money Laundering Act of 2020, in the National Defense Authorization Act for Fiscal Year 2021, and is enforced by the Financial Crimes Enforcement Network (FinCEN). It is intended to assist FinCEN in protecting national security by requiring the disclosure of personal information to “help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs…from laundering or hiding money and other assets in the Unites States.”1 Money laundering schemes often occur within shell companies because bad actors can remain anonymous while illegally accessing and transacting in the United States economy. The Corporate Transparency Act is meant to minimize anonymity of such individuals by requiring disclosure of personal information with respect to (i) those filing documents to form business entities, (ii) the owners, and (iii) those with a certain level of control. Put simply, FinCEN believes the Corporate Transparency Act “will strengthen the integrity of the [United States] financial system by making it harder for illicit actors to use shell companies to launder their money or hide assets.”2
To form a business entity in Utah, one must file a formation document with the Utah Division of Corporations and Commercial Code. The Corporate Transparency Act will continue to require such filing with this state agency, but will require additional disclosures to the federal agency (FinCEN), as outlined below.
DISCLOSURE REQUIREMENTS
The Corporate Transparency Act requires “reporting companies” to disclose information about their “beneficial owners” and “company applicants” by submitting a Beneficial Owner Information (BOI) report to FinCEN.3
Reporting Companies. Reporting companies fall into two categories (1) domestic reporting companies, and (2) foreign reporting companies. Domestic reporting companies are entities that are formed by filing a document with the applicable state agency. Foreign reporting companies are entities that are formed according to the laws of the foreign jurisdiction of formation, but are registered to conduct business in the United States. Entities that are not formed by filing with a state agency, such as certain trusts, are not considered reporting companies. There are several exemptions to the reporting company definition, most notably (1) nonprofit entities, as well as (2) companies that (x) have more than twenty full-time employees, (y) have a physical location in the United States, and (z) reported more than five million dollars in revenue for the previous year. Reporting companies must provide the following information in their BOI report: (i) name, (ii) address, and (iii) taxpayer identification number.
Beneficial Owners. A “beneficial owner” is any individual that, directly or indirectly, (1) exercises “substantial control” over the reporting company, or (2) owns or controls at least 25% of the ownership interests in the reporting company.
Each beneficial owner must provide the following information in the BOI report (i) legal name, (ii) date of birth, (iii) address, (iv) unique identifying number from either a current state issued license, current passport, or, if no license or passport is available, another identifying document, and (v) an uploaded copy of such license, passport, or other identifying document.
Company Applicants. A “company applicant” is the individual that files, or is responsible for the filing of, the formation documents with the state. Company applicants must provide the same information as beneficial owners. However, entities in existence prior to January 1, 2024 are not required to provide company applicant information.
BOSS Electronic System. BOI reports will be submitted electronically via an online platform called the Beneficial Ownership Secure System (BOSS). As of mid-November, BOSS was unavailable to the public, but should be active by January 1, 2024.
EXISTING ENTITIES VERSUS NEWLY FORMED ENTITIES
The Corporate Transparency Act applies to all reporting companies that (i) existed prior to January 1, 2024 (existing entities), and (ii) will be formed on or after January 1, 2024 (newly formed entities). Existing entities are required to make the disclosures outlined above by providing a BOI report by January 1, 2025. Newly formed entities must provide a BOI report within thirty (30) days of formation of the entity.
AMENDMENTS AND UPDATES
In the event a BOI report must be amended due to a mistake or change in previously disclosed information, the reporting company and its beneficial owners must provide an updated or amended BOI report to BOSS within thirty (30) days of becoming aware of, or having reason to know of, the inaccuracy or change of information.
CONCLUSION
While this article only provides a high-level overview, FinCEN has published resources and information on their website4 that provides additional detail. The Corporate Transparency Act is a significant change to entity formation processes that widely affects almost all entities—including entities commonly used in medical practices and for personal estate planning purposes. Prompt attention to the requirements will mitigate the possibility of civil and/or criminal penalties for noncompliance.
ENDNOTES
1. Beneficial Ownership Information Reporting Rule Fact Sheet, Financial Crimes Enforcement Network (September 29, 2022), www.fincen.gov/beneficialownership-information-reporting-rule-fact-sheet
2. Id.
3. Please note this Article only provides a high level summary of the requirements of the Corporate Transparency Act.
4. www.fincen.gov
Eliza Burnett
Eliza Burnett is a transactional associate with Ray Quinney & Nebeker, practicing in the firm’s Corporate/Business, Banking and Finance, and Health Care sections. Specifically, Eliza focuses on finance and mergers and acquisitions, including entity formation and planning, corporate finance, and corporate compliance.