corporate transparency act

Demystifying the Corporate Transparency Act: A Guide for Homeowner Associations

Posted by Omega Property Management | May 3, 2024

Introduction to the Corporate Transparency Act (CTA)

The Corporate Transparency Act (or “CTA” for short) was introduced in 2021 to further discourage money laundering and terrorism by extending existing federal regulations. Before the Corporate Transparency Act, businesses that were required to maintain and report certain financial records did so under anti-money laundering (AML) laws. 

Beginning January 1, 2024, this requirement extended to include most existing businesses in Minnesota, and they will be required to report information about business ownership to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (or FinCEN for short) before January 1, 2025. 

The purpose of the Corporate Transparency Act is to prevent people with bad intentions from setting up a business (well, a “business”) with the sole purpose of using this “business” as a disguise for money laundering activities. But critics of the CTA question whether it does what it set out to do. Furthermore, they argue that this new requirement infringes on the privacy rights of business participants. 

In this post, we’ll review the Corporate Transparency Act (which stands to be overturned) and discuss how the new laws may impact your business. 

Wondering how the Corporate Transparency Act impacts your HOA in Minnesota? We invite you to attend our Spring Board Training next month to have all of your questions answered! In addition to the President of Omega Property Management, we’ll also have attorneys from Smith Jadin Johnson present to field any questions you may have! RSVP today and join us in person or online! 

Key Provisions of the Latest Version of the Corporate Transparency Act

While the Corporate Transparency Act went into effect on January 1, 2024, there have been talks between the FinCEN and Congress about possibly delaying its effective date or possibly excluding HOAs from this requirement. There has been one successful judicial challenge in Alabama, but that applies to a very small subset of corporations.

Regardless of whether it’s eventually overturned or additional exemptions are added for HOAs, the CTA holds some key provisions you should understand:

  • Privacy. Though this is a valid concern, the individual’s right to privacy governs the extensive measures the FinCEN takes to prevent data from being leaked. 
  • Beneficial Ownership. Many business owners are slightly confused about the “beneficial owners” of a business. According to MNCPA, this new designation includes “individuals who directly or indirectly exercise substantial control over a reporting company” which would include members of a Board of Directors.
  • Timeline: Businesses required to report must do so within one year of the January 1, 2024, effective date. 

What businesses are exempt from reporting to FinCEN under the Corporate Transparency Act? 

According to the Minnesota Department of Employment and Economic Development, 23 categories of organizations are exempt from reporting under the Corporate Transparency Act. While “tax-exempt entities” appear on the list, that generally does not include most HOAs.

What information does the Corporate Transparency Act require businesses to report? 

The Corporate Transparency Act requires all “reporting companies” (defined as those who are not exempt based on the list in the previous section) to provide information on their “beneficial owners” and any “company applicants” who may form those “reporting companies.” FinCEN’s Small Entity Compliance Guide goes into great detail as to what qualifies each of these terms, but we’ve summed them up below for ease of understanding: 

  • A “(domestic) reporting company” is essentially any corporation, trust, or LLC formed by filing with the Secretary of State’s office within a given state. Additionally, an organization formed outside of the United States but registered to do business within the United States is considered a “foreign reporting company” and is similarly required to report to FinCEN.
  • A “beneficial owner” exercises “substantial control” over a reporting company—either directly or indirectly—or owns or controls at least 25% of the ownership interests for the aforementioned reporting company. “Substantial control” is defined as one who either a) is a senior officer (e.g., President, General Counsel, CFO, CEO, or COO), b) can appoint or remove officers or directors, c) is an important decision-maker or d) maintains any other type of substantial control over the organization. Note: an individual does not need to meet all of those criteria; he or she must only meet one criterion to be viewed as having “substantial control.” This clearly would include a member of a Board of Directors.
  • Not all reporting companies must report their “company applicants.” If your company was created before January 1, 2024 (domestic) or registered to do business in the United States before January 1, 2024, (foreign), you are not required to report company applicants. That said, “company applicants” are those who are either direct filers or those who are direct or control filing actions.

How long do I have to file a report under the Corporate Transparency Act?

HOAs in existence as of January 1, 2024, will have until January 1, 2025, to comply.

Any changes to the filing (e.g., a new Director is elected or appointed) must be completed within 30 days by submitting a new BOI form.

Impact on Businesses and Compliance Obligations

Under the Corporate Transparency Act, a business must provide considerable information on itself, its owners, and its company applicants. 

BOI requirements for a reporting company

As it concerns the business, the following information must be provided: 

  • Full legal name
  • Any DBA (“doing business as”) or trade names
  • Complete business address
  • Federal tax identification number
  • Jurisdiction where it was created

BOI requirements for beneficial owners

Concerning beneficial owners, the following information must be provided: 

  • Full legal name
  • Home address
  • Date of birth
  • Photo identification (e.g., passport, driver’s license)

Final thoughts 

The Corporate Transparency Act may provide more, well, transparency into the business dealings of an organization and, ultimately, stop money laundering through the use of shell companies.

While some may feel this level of government involvement is intrusive, others believe it’s necessary to provide a larger sense of protection against criminal activities — especially terrorism. 

Want to be sure your business is compliant? Contact us today! At Omega Property Management, we stay on top of legislation and leverage our knowledge and experience to get stuff done for you!