The Corporate Transparency Act (CTA) is a landmark legislation aimed at increasing corporate transparency and combating illicit financial activities. Passed in 2021 as part of the National Defense Authorization Act, the CTA mandates that corporations, limited liability companies (LLCs), and similar entities report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This initiative aims to curb money laundering, terrorism financing, and other financial crimes by eliminating the anonymity that facilitates these activities.
Key Provisions of the CTA
The CTA requires that reporting companies disclose their beneficial ownership information. A beneficial owner is defined as an individual who owns or controls 25% or more of the entity or exercises substantial control over it. The required information includes the full legal name, date of birth, current residential or business address, and an identifying number from a government-issued document, such as a passport or driver’s license.
Compliance deadlines are crucial. Companies created or registered before January 1, 2024, must submit their beneficial ownership information by January 1, 2025. Entities formed on or after January 1, 2024, have 90 days from their formation to file their reports. Additionally, entities must update their reports within 30 days of any change in the provided information.
Why Do Board Members Need to Comply?
Unfortunately, it was written so broadly that it applies to any individual who (1) owns or controls at least 25% of the reporting company’s ownership interests or (2) exercises substantial control over the reporting company. Because volunteer board members make decisions and exercise “substantial control,” the current industry sentiment is that all Board Members are considered beneficial owners and must file. There are exemptions for 501 c(3)s but rarely do HOAs get afforded that status and if they do it is almost always a single-family community.
Impact on HOAs and Their Directors
Homeowners associations (HOAs) and their directors must understand how the CTA impacts them, as non-compliance can result in significant penalties. Although many HOAs operate as non-profit organizations and might assume they are exempt, the CTA currently only exempts 501(c)(3) nonprofit organizations from beneficial ownership reporting.
HOA directors are responsible for ensuring their associations comply with the CTA by identifying all beneficial owners and making timely filings. Familiarizing themselves with the specifics of the law and consulting legal counsel is essential for full compliance. Penalties for failing to comply with the CTA can be severe, with civil penalties including fines of up to $500 per day until the violation is remedied, and criminal penalties potentially involving imprisonment for up to two years and additional fines.
Steps for Compliance
To comply with the CTA, HOAs and their directors should take the following steps:
- Assessment: Determine whether the HOA qualifies as a reporting company under the CTA by reviewing the association’s structure and governance.
- Identify Beneficial Owners: Identify individuals who meet the criteria of beneficial owners, including anyone with significant control over the HOA or substantial ownership interests.
- Gather Information: Collect the required information for each beneficial owner, ensuring accuracy and up-to-date records.
- File Reports: Submit the beneficial ownership information to FinCEN by the required deadlines using FinCEN’s online filing system.
- Ongoing Updates: Establish a system for monitoring changes in beneficial ownership and ensure updates are reported to FinCEN within the 30-day window.
RISE Association Management Group’s Role
At RISE, we are dedicated to ensuring our community associations comply with the CTA. Here’s how we plan to manage the process.
Under the CTA, every HOA must report specific information about its beneficial owners to FinCEN. This includes the full legal name, date of birth, current residential or business address, and a unique identifying number from an acceptable identification document, such as a driver’s license or passport.
We will coordinate the filing process to ensure compliance with the CTA. By the end of October, board members will easily be able to add their information and electronically submit their BOI report through our online board portal. However, we are currently monitoring ongoing litigation that seeks to delay the effective date of these requirements for HOAs. This litigation could potentially impact the timing and specific requirements, and we will keep you informed of any developments.
Next Steps for Our Clients
In the next 60 days, we will reach out to gather the required information from each board member. Please ensure you have the necessary documents ready for submission. We are closely watching the legal proceedings and will adjust our timelines and processes accordingly. We will provide updates as soon as we have more definitive information. Should the litigation result in a delay or changes to the requirements, we will communicate promptly and adjust our plans to ensure compliance with the updated regulations.
Your cooperation and prompt response will be crucial in ensuring that we meet all legal requirements in a timely manner. Should you have any questions or need further clarification, please do not hesitate to contact our compliance team.
Conclusion
For HOAs and their directors, understanding and complying with the CTA is essential to avoid penalties and ensure operational transparency.
At RISE, we are committed to guiding our clients through this process to ensure compliance with federal regulations. Your cooperation is vital, and we appreciate your prompt attention to this important matter.
