Compliance Guidance

What You Don't Know About The Corporate Transparency Act

The Corporate Transparency Act has been covered ad nauseam, but still has several aspects that can cause serious issues if you aren't aware of them.

Who can delay filing, and who can’t

Unsurprisingly, there are multiple lawsuits and legislative action challenging the Corporate Transparency Act, which we won’t try to predict the outcome of (plenty of others are though). So should you file now or wait?

If you formed your legal entity this year and aren’t exempt, FinCEN still expects you to file within 90 days. 

If the entity was formed before 2024, there is no reason to file before Q4 at the earliest. The rule has already changed this year (filing window post incorporation increased to 90 days), and may again, particularly given all of the legal and political pressure on the law. 

Given the enormous impact of the Corporate Transparency Act, by Q4 there will also be many ways to meet your filing obligations, software, service providers, etc (there already are).

FinCEN IDs don’t expire, which makes them surprisingly onerous

FinCEN IDs have clear utility for people listed on multiple filings. For example, if a beneficial owner with a FinCEN ID changes their address, they need only update their FinCEN ID profile to update their information across every entity in which they are related.

However, FinCEN IDs don’t expire. This means technically by using a FinCEN ID, you may be on the hook to keep your information updated within 30 days of it changing, in perpetuity. Beneficial Ownership Information without a FinCEN ID no longer needs to be updated 5 years after an entity is dissolved.

Of course, this requirement may change and seems like an oversight, but today, FinCEN IDs don’t expire and can’t be deactivated.

The ongoing filing burden is sneakily worse than initial filings

In Q4, there will be an unprecedented number of initial filings, as everyone not exempt from the CTA must comply by year end. This is onerous for everyone, but for organizations with a high number of legal entities, the time period will be particularly painful.

Despite that, the far larger burden is actually on remaining in compliance on an ongoing basis, as each Reporting Company has an obligation to update the Reporting Company or Beneficial Ownership Information within 30 days of it changing.

Tracking ongoing changes across many legal entities is particularly challenging. Consider an example where a family office has 50 legal entities, where a single beneficial owner is present across 30 of the entities. If that person changes their address, if not using a FinCEN ID the family office must make 30 change filings as well as track that those filings have been completed.

Going into the end of the year, if you’re evaluating service providers, ongoing filing capabilities should be at least as important as the initial filing.

When to use software versus services to meet CTA requirements

Because the Corporate Transparency Act impacts so many businesses, there are a huge number of providers - law firms, registered agents, consultants that are offering their services. 

Broadly, there are two big chunks of work related to the CTA: 

  1. Figuring out whether an entity is exempt
  2. Actually filing the beneficial ownership reports

Most companies will have no problem determining whether their entities are exempt, but if you’re not sure or have a complex situation, using a law firm or other similar service provider makes sense.

However - there’s virtually no value whatsoever to using a services firm to actually “meet” the CTAs requirements and file reports. Software is a no-brainer here. 

Why? It’s a simple filing, with basic demographic information, which software excels in collecting. Modern user interface design can in this case vastly decrease time to file and accuracy. There will also be many software providers by year end, providing filings at a much lower cost than can be done by humans.

Cost of filing BOI reports

FinCEN has an API for BOI filing that they have already started provisioning access for. The impact of this can’t be understated, because as a result, outside of the development and maintenance of the software, there aren’t obvious, material variable costs to file using this API.

This means in theory using software can be a highly cost effective way to file BOI reports, in lieu of using a professional services firm or human capital.

FinCEN estimates 90 minutes per filing for simple filings, which would obviously decrease materially with modern software, especially for repeat filings where information can be reused instantly.

About Discern and the author

Mike Bosserman is a co-founder of Discern. Previously, he held operating and investing roles at prominent fintech companies Wise and MANTL, as well as Valar Ventures and Spider Management Company (the University of Richmond’s endowment).

Discern is a modern compliance operating system for entity management, providing: 

  • Registered Agent service in 51+ jurisdictions
  • Automated Secretary of State filings
  • Corporate Transparency Act filing automation (soon)

What do we mean by Corporate Transparency Act automation?

  • Discern’s filing engine will handle initial and ongoing reports
  • Information can be reused across filings instantly, so you never need to type the same thing twice
  • Modern best practices with user interface design: pre-fill of address information, field level validation of other fields to prevent errors, mobile responsiveness, etc.
  • For ongoing filings - tracking of changes to BOI to alert when ongoing filings must be completed

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