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Sponsored by: Drummond Woodsum
February 6, 2024

Maine Businesses Beware: An Overview of the Corporate Transparency Act

Co-written by Drummond Woodsum attorneys Michael E. High, Brittany H. Michaud, and Andrew C. Sweeney

Beginning on January 1, 2024, the Corporate Transparency Act (“CTA”) requires certain U.S., foreign and tribal businesses to file information with the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Department of Treasury. Congress enacted the CTA as part of the Anti-Money Laundering Act of 2020 to identify money laundering schemes and other similar financial crimes. Unfortunately, it also imposes a series of new and potentially burdensome filing requirements on small and medium sized businesses. The following is a brief overview of a new and complicated regulatory regime that will impact many Maine businesses.

Who Must File and When?

The CTA applies to any entity that is formed in the U.S. (or to any foreign entity that is registered to do business in the U.S.) by filing a document with a governmental office, such as the secretary of state of a company’s jurisdiction or organization. As a result, the CTA will apply to limited liability companies and corporations, among others, and to most Maine business organizations unless one of the CTA exemptions applies.

Businesses that exist or are registered prior to January 1, 2024 will have until January 1, 2025 to file initial reports, while businesses created or registered on or after January 1, 2024, will have 90 days after creation or registration to file the report or 30 days if registered or created on or after January 1, 2025.

There are 23 narrowly defined categories of legal entities that are exempt from the CTA reporting requirements, many of which only apply to large companies or companies that are already regulated by other governmental agencies (such as public companies, banks, insurance companies and certain regulated companies in the securities and investment industries).

An exemption applies for large operating companies with more than 20 full-time employees in the U.S., that reported more than $5 million in gross receipts or sales on their filed prior year’s U.S. federal income tax return and that have an operating presence at a physical office in the U.S.

What Information Must Be Reported?

Businesses subject to the reporting requirements of the CTA must file a beneficial owner information report (“BOI Report”) with FinCEN. Filings are made electronically through an online portal and information is stored in a nonpublic database.

A beneficial owner is any individual who, directly or indirectly, (i) exercises “substantial control” over the reporting company (including managers, directors and senior officers), or (ii) owns or controls 25% or more of the ownership interests of the reporting company. Company applicants also must submit a BOI Report for reporting companies formed after January 1, 2024. A company applicant is a natural person who actually files the organizational documents with the secretary of state’s office to create or register the reporting company or controls such filings.

Reporting companies must report their legal name; trade names or DBA names; address of its principal place of business in the U.S.; jurisdiction of formation; for a foreign entity, the U.S. jurisdiction where first registered; and IRS taxpayer identification number.

Beneficial owners and company applicants must report an individual’s legal name; date of birth; residential address; identifying number from, and issuing jurisdiction of, the individual’s driver’s license, passport or other approved ID; and an image of such ID.

Notably, beneficial owners and company applicants can apply directly to FinCEN for a unique FinCEN identifying number that the reporting company can list on its BOI Report instead of collecting the personal information for the particular beneficial owners and company applicants.

While reporting companies do not need to file BOI reports annually, a reporting company must update its report within 30 calendar days of any change to information, including any change in its beneficial owners or any of the information reported by its beneficial owners.

What are the Potential Penalties?

Failure to comply with the CTA could result in penalties, including a fine of $500 per day up to $10,000 and criminal liability in certain cases.

What’s Next?

Reporting companies should develop in-house compliance policies to handle, monitor and update reporting, and determine who in the organization will be responsible for the reporting and ongoing compliance, how beneficial owners will be identified and what information will be needed for compliance.

The CTA presents a new regulatory regime with which many small to mid-sized businesses will need to comply. Two things are certain, however: the CTA will result in additional record-keeping and reporting obligations, and reporting companies must comply with its requirements. It would be prudent for companies to begin developing appropriate compliance policies and procedures, and speak to their advisors about making or arranging for all the necessary filings under the CTA.