Law in the Marketplace:  Don’t miss your CTA deadline

By JOHN CUNNINGHAM

For the Monitor

Published: 10-28-2023 11:00 AM

This column is about important new federal deadlines applicable to virtually all New Hampshire business entities. Failure to meet these deadlines can result in serious penalties for these entities. The deadlines are discussed at the end of this column. First, however, some indispensable background:

■ As many readers will know, on January 1, 2021, the federal government passed an important new law, called the Corporate Transparency Act (the “CTA”), that will affect almost all privately held U.S. business — perhaps more than 32 million of them, including virtually all New Hampshire business entities. It will also affect many foreign business entities doing business in the U.S.

■ The CTA requires these entities to file with the Financial Crimes Enforcement Network (“FinCen”), the relevant agency of the U.S. Treasury Department, basic information about the entities themselves; the individuals who are the true beneficiaries of these entities (as opposed to mere documentary beneficiaries); and the individuals who are their true controllers — again, as opposed to individuals with mere documentary control.

■ The purpose of the CTA is to force business entities whose owners and controllers are foreign or domestic “bad actors” to disclose their beneficial ownership and control of these entities. The federal government believes that because of these CTA mandatory disclosure requirements, bad actors who have existing U.S. business entities will liquidate them and that those who are considering forming business entities will decide not to form them. Domestic bad actors consist, for example, of individuals engaged in criminal money-laundering or tax evasion. Foreign bad actors consist, for example, of Russian or Chinese individuals who want to use business entities to disrupt American elections.

■ The CTA will become effective on January 1, 2024. However, business entities that were formed before that date will not have to file their FinCen reports until January 1, 2025. By contrast, business entities formed on or after January 1, 2024 must, with certain exceptions, file initial FinCen reports within 30 days after their formation.

Here are the lessons for New Hampshire business owners who read this column:

■ As noted, if you have formed your business before January 1, 2024, you don’t need to file your FinCen report until January 1, 2025. Furthermore, you shouldn’t do so, since it is clear that FinCen will issue a number of important filing regs. and forms before that date.

■ If you have decided to form a new business entity, you should form it before January 1, 2024; and since the process of forming a new business is often complex and time-consuming, you should begin the process now.

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■ If, for any reason, you plan to form a new business entity but can’t do so until on or after January 1, 2024, you should at least make plans to do so by then. However, FinCen will be publishing additional CTA regulations in November or December. I will advise you of these new regs in this column as soon as they appear.

But every New Hampshire business entity, whenever formed, should make sure that the agreement among its owners — e.g., its LLC operating agreement or corporate shareholder agreement — contains provisions that will ensure its CTA compliance, including provisions dealing with the reporting of post-formation changes of ownership and control. To meet this requirement, talk with a New Hampshire lawyer who is an expert not only about the CTA but also about how to draft ownership agreements among business owners.