Do LLCs have stock?

Typically, “stock” is not the term used for LLC ownership shares. In most LLCs, the LLC Agreement designates a certain number of what it calls “membership units” or “member interests” and may break them down further into a certain number of Voting Units and Nonvoting Units. This bifurcation is similar to how corporations can authorize voting and nonvoting stock, usually called “common” and “preferred” shares, respectively.

Stock, in the context of a corporation, means units of ownership that give its holders rights to a percentage of ownership, a certain number of votes, and possibly a certain dividend. Membership is used in the context of an LLC because in addition to the rights stockholders possess, LLC members more often manage the day to day business of an LLC, which in a corporation is a right usually left to the Directors.

The simpler structure of vesting the rights of shareholders, directors and managers all in one type of person is one reason many people choose to form an LLC instead of a corporation. 

What Is Stock, Exactly?

A stock certificate is a fancy piece of paper signed by the president and the secretary of a corporation that lists the name of a shareholder, the certificate number, and the number of shares held. The list of stockholders who own a corporation’s issued shares appears on the corporation’s stock ledger.

Stock may also be uncertificated. That means the shareholders do not receive those fancy certificates. Instead the shareholder names, number of issued shares and date of issuance just show up on a capitalization table, known as a cap table. This may also be stored virtually through blockchain technology or otherwise.

Stock gives a person a certain amount of rights in voting and economic interests depending on the number of shares and class of those shares. Shares can be voting and convoying. They can also be common and preferred.

The number of shares issued to shareholders cannot exceed the number of authorized shares set forth in the Certificate of Incorporation. In turn these shareholders elect the directors that in turn appoint officers to run the corporation.

Unlike an LLC, changing ownership in a corporation is fairly straightforward and simple. While a stockholder agreement may add restrictions to the transfer of shares, otherwise the shares of stock are freely transferable which can be accomplished through an endorsement on the back of the certificate.

Are there shareholders in an LLC?

Because LLCs do not issue stock, there are not “shareholders” or “stockholders” in LLCs. LLCs do have “members,” which hold ownership units in the LLC. There can be different classes of membership units with different rights and duties.  For example, an LLC can designate Voting and Non-Voting membership units.

Limited Liability Companies do not have stock or bylaws. In fact, LLCs have almost no features of corporations. Legal professionals refer to LLCs as “unincorporated entities” because they are creatures of contract, rather than corporations, which are creatures of statute.

But what does it mean to be a “creature of contract”? Doesn’t the Delaware LLC Act authorize LLCs? Does that not make them statutory?

The general answer is that corporations have statutory formalities and hierarchies they must follow and cannot waive. Corporations have “default rules”, many of which the owners cannot change.

How do you Structure an LLC?

In the Delaware LLC, there is not a default rule to establish the LLC framework. Instead, its internal contract can establish the entire framework for an LLC. This contract is called its “Operating Agreement.” After a general notice filing with the formation jurisdiction, called a Certificate of Formation in Delaware, the LLC’s private Operating Agreement takes over to set forth the ownership structure and management structure. It may provide for a broad business purpose or a single business purpose. The Agreement can give managers broad powers or narrow powers. It can provide for member liability or limit member liability for capital calls and other obligations.

Who Owns the LLC?

The LLC does not have stock or stockholders. Instead, the Operating Agreement has membership interests. The Operating Agreement lists the membership interests of each member rather than in separate member certificates. The Operating Agreement determines the rights of each type of membership interest.

Delaware allows for maximum flexibility of contract when entering into an Operating Agreement. In exceedingly rare situations, LLC members use this freedom to “opt into” the Delaware General Corporation Law and establish members to establish rights of corporate stockholders who vote for directors who appoint officers. That anomalous situation is far from the norm. Most Delaware LLCs have owners called members and operators called managers. The Operating Agreement sets forth their powers and duties. This structure is much less bureaucratic than the corporate formalities which makes LLCs more popular.

How to Add Owners to an LLC

The owners, also known as “members”, of a Delaware LLC are like parties to a contract. The Operating Agreement sets forth the names of the members and managers. You can either become an owner at the outset at the time of formation, or later by being transferred membership interests. The operating agreement controls the transfer of ownership interests. We often see this documented in an amended and restated Operating Agreement, as well Members Resolutions approving the new members and transfer of interests. Sometimes one can also become a member by gift or inheritance, but because of the contractual nature of the LLC, those new members should be required to sign the operating agreement. Operating Agreements in Delaware do not need to be in writing. They can also be oral or implied. Every LLC in Delaware has an operating agreement whether or not the members know they do. It may just be a series of emails, a handshake or a course of performance. Of course the best practice is to have a written and signed operating agreement. The operating agreement is not on file with the secretary of state. It is a private document between the LLC’s members. Even single member LLCs have operating agreements listing just one person as an owner.

The post Do LLCs Have Stock or Shareholders? appeared first on IncNow.

Starting January 1st, 2024, owners of U.S. businesses will need to comply with new rules. The Corporate Transparency Act (CTA) is a federal law that requires business entities, like LLCs and corporations, to report information about their owners to the Financial Crimes Enforcement Network (FinCEN). These new reports are called “Beneficial Ownership Information Reports”.

Honest business owners who fail to file Beneficial Ownership Information Reports on time or can face fines and jail time.

In this article, we walk you through what Beneficial Ownership Information Reporting is, how it works, and what you need to do to comply with this new law.

What Is A Beneficial Ownership Information Report (BOIR)?

Starting in 2024, U.S. businesses need to submit Beneficial Ownership Information to FinCEN. These reports include personal information about significant people involved in the company, including owners and managers.

CTAboi.com has a Complete Guide to Beneficial Ownership Information Reporting (BOIR)

Imagine you are an FBI agent investigating a company for money laundering. What information would you need? You would want to know who the significant owners of the company are, and all the people who call the shots. You may also want to know who was responsible for getting the company setup. Business owners should prepare to submit a Beneficial Ownership Information Report with this information to FinCEN.

A Beneficial Ownership Information Report is different from a company’s incorporation or formation documents. You file these documents with a state government to register your company. You submit Beneficial Ownership Information Reports to the federal government via the Financial Crimes Enforcement Network to comply with the Corporate Transparency Act.

Do I Need a BOIR for My LLC

Yes, LLCs are reporting companies under the Corporate Transparency Act. Unless exempt, all LLCs need to file an initial Beneficial Ownership Information Report (BOIR) with FinCEN and file updated BOIRs within 30 days of whenever that information changes. The Corporate Transparency Act (CTA) requires millions of U.S. businesses to file true, correct, and complete ownership reports before the prescribed deadline to avoid severe penalties. As the law is written, LLCs formed before 2024 had to file their BOI Reports by December 31, 2024, while LLCs formed after 2024 only have 30 calendar days to file from their date of formation. However, the recent injunctions on the CTA created uncertainty of whether or not FinCEN or the government will allow a deadline extension. If you have not done so already, you should file your initial BOI Report as soon as possible. With the US Supreme Court ruling in the Texas Top Cop Shop case, the CTA is generally viewed as Constitutional. Furthermore the Trump administration’s new Treasury Secretary based on legal briefs is also supportive of the law. Therefore you should not wait thinking this requirement will go away.

BOIR Checklist: What Do You Need to Report?

FinCEN requires business owners to report personal information about three types of people in their companies:

1. Beneficial owners,
2. Control parties, and
3. Company applicants.

LLCs and corporations need to provide FinCEN with the following information for all of their beneficial owners, control parties and company applicants:

• Full name,
• Residential address,
• Date of birth; and,
• An identification document.

This information needs to be included in the company’s Beneficial Ownership Information Report.

Each person listed in a company’s Beneficial Ownership Information Report needs to provide FinCEN with a picture of an identification document.

You can use the following identification documents to complete the Beneficial Ownership Information Report:

• A drivers license,
• State, local, or tribe-issued IDs,
• A U.S. passport; or
• A foreign passport.

Who Gets Included In  A Beneficial Ownership Report?

FinCEN requires LLCs and corporations to provide information about their beneficial owners, control parties and company applicants in their Beneficial Ownership Information Reports.

These are not common terms, so let’s break down who beneficial owners, control parties, and company applicants are:

Who Are Beneficial Owners?

A “beneficial owner” is any person or business entity that has a piece of ownership in a company. Typically, an LLC refers to its owners as “Members”, while a corporation refers to its owners as “stockholders”.

There are ways you can be a beneficial owner besides being a Member in an LLC, or a stockholder in a corporation. A person can be considered a beneficial owner if they:

• Have interests in the capital or profits of an LLC,
• Own any options or convertible stock in a corporation, or
• Benefit from a trust owning any company interests.

Beneficial owners need to be real people. If a business entity is an owner of another company, then that entity will also need to disclose its beneficial owners to FinCEN. For example, if an LLC owns the stock of a corporation, the LLC will need to be report its beneficial owners.

Who Are Substantial Control Parties?

A “control party” is any person or business entity that has “substantial control” over a company. In other words, control parties have a say in making big decisions for an LLC or corporation. This includes the Officers in a corporation, or the Managers in an LLC.

Additional examples of control parties include:

• Members of the Board of Directors of a for-profit corporation ,
• People with majority voting rights in an LLC,
• Trustees of an estate planning trust that is a Member of the LLC, and more.

A control party is anyone who has the authority to complete certain actions on behalf of a company. These may include:

• Signing contracts,
• Hiring employees,
• Signing checks, and
• Opening business bank accounts.

Who Are Company Applicants?

New LLCs and corporations formed after January 1st, 2024 will need to include information about their company applicants in the Beneficial Ownership Information Report. According to FinCEN, a reporting company has two company applicants:

Company Applicant 1.) The person who starts the company formation process; and,

Company Applicant 2.) The person who submits company formation documents to the Secretary of State.

If you use an incorporation service, like IncNow, to form your LLC or corporation, the first company applicant would usually be the person who placed the order. The second company applicant will be the employee of the service company who files the formation documents with the Secretary of State.

Note that the company applicant requirement only applies to new companies formed in 2024. Existing companies formed before 2024 do not need to include company applicants in their Beneficial Ownership Information Reports.

Which Business Are Exempt From Beneficial Ownership Information Reports?

FinCEN allows exemptions for certain types of businesses. There are 23 exemption categories in total. Businesses need to meet each piece of criteria for one of the exemption categories in order to qualify for an exemption.

Companies that may not have to submit Beneficial Ownership Information Reports include:

• Large operating companies with more than 20 employees in the U.S.;
• Non-profit organizations (corporations given 501(c)(3) tax exempt status);
• Publicly traded companies;
• Financial institutions;
• Regulated investment and insurance companies, and more.

Any company that is a registered business entity in the U.S. needs to submit a Beneficial Ownership Information Report to FinCEN. This includes most LLCs and corporations formed in the U.S.

According to FinCEN, any business entity that’s created by filing a document with a Secretary of State’s office is required to submit a Beneficial Ownership Information Report. Foreign companies registered to do business in the U.S. also need to file reports.

When Are Beneficial Ownership Information Reports Due?

The new rules for beneficial ownership reporting go into effect on January 1st, 2024. The company’s formation date determines when it needs to submit its Beneficial Ownership Information Report.

• New reporting companies formed in 2025 and thereafter will have only 30 days to file their Beneficial Ownership Information Report.
• Existing reporting companies formed in 2024 have only 90 days to file their Beneficial Ownership Information Report.
• Existing reporting companies formed before 2024 have until January 1st, 2025* to file Beneficial Ownership Information Reports.
• All companies have only 30 days to update a Beneficial Ownership Information Report if any information changes.

Starting in 2024, all new companies formed will have only 30 days to submit a Beneficial Ownership Information Report to FinCEN. The 30 day window starts from the date that the company’s incorporation documents are filed in its home state.

Companies existing before January 1st, 2024 need to submit their Beneficial Ownership Information Reports to FinCEN before January 1st, 2025.

How to Update a Beneficial Ownership Information Report

It is important to know that the information in your company’s Beneficial Ownership Information Report must be kept up to date at all times. If a company’s beneficial ownership information changes, the company has only 30 days to submit an updated report to FinCEN.

For example, if one of the beneficial owners changes their residential address or gets a new passport, then the company’s Beneficial Ownership Information Report needs to be updated. Business owners face significant fines, and even jail time, if they do not submit complete and accurate reports to FinCEN by the deadline.

What is a FinCEN ID, and How Can It Help?

FinCEN gives individuals and companies the option to register for a FinCEN identification number (FinCEN ID). Getting a FinCEN ID can make it easier to complete and update a company’s Beneficial Ownership Information Report.

To get a FinCEN ID, you need to submit the same information required in the Beneficial Ownership Information Report.

A person needs to submit the following information to get a FinCEN ID number:

• Full name,
• Residential address,
• Date of birth; and,
• Identification document (drivers license, passport, or state-issued ID).

LLCs and corporations can also get their own FinCEN ID numbers. The following information is required for a company to get a FinCEN ID number:

• Legal name,
• Tax ID number (EIN),
• Country of formation,
• State of formation; and,
• Business address.

It is important to know that when an individual obtains a FinCEN ID number, it becomes their personal responsibility to keep their information up to date with FinCEN.

How Much Does a Beneficial Ownership Report Cost?

FinCEN does not charge a fee for companies to submit Beneficial Ownership Information Reports (BOIR). There is no fee to submit the BOIR initial report, or any updated or corrected reports.

The post What Is A Beneficial Ownership Information Report? appeared first on IncNow.

Business entities operating in the United States need to prepare for new compliance requirements taking effect on January 1, 2024. The Corporate Transparency Act (CTA) requires LLCs and corporations to submit BOI reports to FinCEN. These reports contain basic information about a company’s significant owners and important decision makers.

Whether your business is a solo venture or involves multiple partners, it’s crucial to proactively meet the BOI reporting requirements to avoid harsh penalties. In this article, we recommend steps that business owners should take to ensure their companies comply with the Corporate Transparency Act.

What are Beneficial Ownership Information Reporting Requirements?

Starting from January 1st, 2024, both new and existing business entities must file Beneficial Ownership Information (BOI) reports with FinCEN. This includes most LLCs and corporations formed in the U.S. These reporting requirements were introduced as part of the Corporate Transparency Act, a federal law that combats illegal financial activity, like money laundering.

BOI reports require companies to disclose personal information about each of their beneficial owners and control parties. These individuals include the direct owners of the company, as well as any other important decision makers.

The following information needs to be provided for each individual being reported to FinCEN:

• Full name
• Residential address
• Date of birth
• Image of a valid ID document

Complying with the Corporate Transparency Act goes beyond just filing a BOI Initial report however. Reporting companies need to keep their Beneficial Ownership Information up-to-date with FinCEN at all times to remain compliant and avoid penalties. BOI Updated reports must be submitted within 30 days of any changes, such as changes in residential addresses or ownership transfers.

8 Tips for Complying with the Corporate Transparency Act

Completing a Beneficial Ownership Information report can be straightforward for one person companies, like single-member LLCs. However, the more people involved in a reporting company, the harder it gets to collect BOI and keep it up to date.

Here are some proactive steps that businesses can take to streamline the BOI reporting process and ensure compliance:

Tip #1.) Understand the BOI Reporting Requirements

Taking time to learn the basics of Beneficial Ownership Information reporting is an important first step of getting on track to compliance. Business owners should understand the terms and language used around BOI reporting, such as “beneficial owner”, “substantial control” and “company applicant”.

Learn some of the nuances of BOI reporting and how they might specifically apply to your company. For example, consider how it might be possible for someone indirectly involved in your company to qualify as a beneficial owner. A thorough understanding of the requirements can help ease the compliance process going forward.

 Tip #2.) Identify all Relevant Parties for Beneficial Ownership Reporting

Reporting companies need to include their beneficial owners, control parties and company applicants in their Beneficial Ownership Information reports. Business owners need to ensure that none of the company’s important decision makers are overlooked in the report.

What are Beneficial Owners, Control Parties and Company Applicants?

Tip #3.) Develop a Data Collection and Storage System

Implement systems to facilitate smooth data gathering. Design forms or checklists to help beneficial owners provide the necessary information for the BOI report.

Some of the information required in a BOI report is sensitive. For example, beneficial owners need to provide a current residential address and picture of a valid ID document. Reporting companies should consider how they are going to securely store any personal identifiable information when submitting BOI Initial reports, and any Updated reports.

Tip #4.) Appoint a CTA Compliance Officer

Some companies may benefit from having one person in charge of the company’s CTA compliance journey. Having a dedicated Compliance Officer can help steer the company towards its compliance goals by ensuring proper Beneficial Ownership Information collection and updates.

Tip #5) Educate All Stakeholders about the Corporate Transparency Act

Effective communication is crucial for CTA compliance.  Everyone involved in a reporting company should be aware of the CTA and understand the BOI reporting requirements.

Holding CTA workshops or training sessions with key individuals can be effective ways to communicate crucial information about a reporting company’s requirements. Consider creating other useful resources for stakeholders, like a detailed booklet or guideline document, that highlight how Beneficial Ownership Information reporting uniquely impacts them.

Getting everyone on the same page about the Corporate Transparency Act can promote collaboration around a company’s compliance efforts.

Tip #6) Develop a BOI Change Management System

For many businesses, keeping BOI information up-to-date with FinCEN is the hardest part of CTA compliance. As a company grows,  it becomes increasingly difficult to manage changes in BOI that require filing a BOI Updated report.

Reporting companies must handle changes in Beneficial Ownership Information diligently to ensure data accuracy and minimize reporting errors. Senior officers face serious penalties if a reporting company fails to disclose any changes in BOI to FinCEN within 30 days.

 Tip #7) Keep Track of Compliance Deadlines

Completing a FinCEN Beneficial Ownership Information report can take time. Awareness of BOI reporting deadlines is essential to avoid last-minute rushes and potential penalties for late reports.

Business owners should set up a system of alerts and reminders for their specific compliance deadlines:

• New companies formed after January 1, 2025, have 30 days to complete a BOI Initial report, starting from the date of formation in their home state.
• Existing companies formed after January 1, 2024 and before January 1, 2025, have 90 days to complete a BOI Initial report, starting from the date of formation in their home state.
• Existing companies formed before 2024 have until January 1, 2025*
  , to complete their BOI Initial reports.
• All companies have 30 days to submit a BOI Updated report in case of Beneficial Ownership Information changes.

Tip #8) Maintain Detailed and Accurate Records

Keep detailed records of any Beneficial Ownership Information reported to FinCEN. A reporting company should be prepared to explain its ownership and management structure in the event of an investigation by FinCEN.

Reporting companies should document significant individuals that they choose not to include in the Beneficial Ownership Information report. A company’s officers should be able to explain why a particular individual is not included in the BOI report.

What are the Penalties for Not Complying with the CTA?

Reporting companies must file complete and accurate Beneficial Ownership Information reports before the specified deadlines to comply with the CTA. Failure to do so can result in severe civil and criminal penalties, including:

• Civil penalties for BOI reporting violations, with fines of up to $500 per day for each continuing violation.
• Criminal penalties for willful noncompliance with BOI reporting requirements can include fines of up to $10,000 and imprisonment for up to two years.

By following these proactive steps and staying informed about the Corporate Transparency Act’s requirements, businesses can navigate the compliance landscape effectively while avoiding potential penalties.

The post How to Comply With The Corporate Transparency Act: Tips for Small Businesses appeared first on IncNow.

If you own an LLC or corporation, you might have encountered the term “Certificate of Incumbency.” Maybe a bank or a lender requested this Certificate to secure a loan for your business.

What exactly is a Certificate of Incumbency? This article delves into Certificates of Incumbency, explaining what they are, why they are used, and how you can obtain one for your Delaware company.

What Is A Certificate of Incumbency?

A Certificate of Incumbency is an internal company document that provides details about the company’s leadership at a moment in time. Certificates of Incumbency are particularly useful for verifying authorized people within a company during processes like opening bank accounts or securing financing.

For corporations, the Certificate of Incumbency lists the current officers and directors, and may include shareholders as well. In the case of an LLC, it identifies the Members who own and control the company.

Typically, the company’s corporate Secretary or President signs the Certificate of Incumbency, and it can also undergo notarization. This notarization process ensures the document becomes part of the public record and can reinforce its authenticity and trustworthiness.

Why Are Certificates of Incumbency Needed?

Companies frequently undergo reorganizations or restructuring, changing their management teams over time. Lenders initially request organizational documents to identify the original leaders, however, they also need to know who currently holds these positions.

A Certificate of Incumbency provides updates on any changes in leadership since the company was formed. This ensures that lenders and other interested parties have accurate and updated information about who is authorized to make decisions on behalf of the company.

What Is A Certificate of Incumbency Used For?

A Certificate of Incumbency may be needed to complete certain business functions, such as: 

• Opening business bank accounts, 
• Obtaining financing from a lender, 
• Selling company stock or assets, or 
• Completing large business transactions.

A Certificate of Incumbency ensures that all parties involved in these activities can verify the identity and authority of the individuals conducting business on behalf of the company.

Does A Certificate of Incumbency Get Filed With The State?

No, Certificates of Incumbency do not usually require filing with the Secretary of State or any other government office. The Certificate is a private legal document prepared by an authorized officer of the company. However, a Certificate of Incumbency can be notarized to make it more official.  

Can LLCs Get A Certificate of Incumbency?

Yes, limited liability companies (LLCs) can indeed issue Certificates of Incumbency. An LLC Manager or Officer is typically responsible for preparing this Certificate, which details the company’s Officers, Managers, and Members as of the current date. A Certificate of Incumbency for an LLC confirms who is involved in managing and controlling the LLC.

How To Get A Certificate of Incumbency For A Delaware Company.

Need a Certificate of Incumbency for your Delaware corporation or LLC? IncNow can help. 

IncNow’s Delaware Incorporation Specialists can prepare Certificates of Incumbency to help your business secure financing, open bank accounts, or close large transactions. 

To obtain a Certificate of Incumbency for a Delaware LLC or corporation, contact IncNow:

Call IncNow at 1-800-759-2248.

Email IncNow at agents@incnow.com.

Delaware Certificate of Incumbency vs. Delaware Certificate of Good Standing

A Delaware Certificate of Incumbency and Delaware Certificate of Good Standing are two types of corporate documents that businesses may require for securing financing or opening financial accounts. While they serve similar purposes, there are significant differences between them.

The Delaware Secretary of State’s office issues a Certificate of Good Standing. This Certificate verifies that a corporation or LLC:

• Is duly formed under the state’s incorporation laws,
• Has fulfilled all its legal obligations, such as submitting annual reports, and
• Has paid all necessary state taxes on time..

A Certificate of Incumbency is like a current directory of your company’s leadership. It names the individuals who have the authority to act on behalf of the company. A company officer actively prepares and signs this document.

Conversely, the Certificate of Good Standing serves as validation from the state that your business is compliant with applicable laws and regulations. It is a formal endorsement from the state.

Key Differences: Certificate of Incumbency vs. Certificate of Good Standing

A Certificate of Incumbency acts like a current directory of your company’s leadership. It specifically names the individuals who have the authority to act on behalf of the company. This document is prepared and signed by a company officer.

On the other hand, the Certificate of Good Standing is a formal endorsement from the state, serving as validation that your business complies with state laws and regulations.

The Certificate of Incumbency is crucial when you need to authenticate the identity and authority of the people managing your company’s affairs. This is typically required for opening new bank accounts or securing corporate financing.

Conversely, the Certificate of Good Standing is often necessary when your company seeks to register to do business in other states or needs to reaffirm its legitimacy and adherence to state laws for various business engagements.

In summary, while the Certificate of Incumbency verifies who currently holds decision-making power within the company, the Certificate of Good Standing assures that the company itself has maintained good legal standing with the state.

The post What Is A Certificate of Incumbency? And How To Get One. appeared first on IncNow.

If you have a Delaware LLC or corporation, there will be times when you will need to check the company’s status and obtain a Delaware Certificate of Good Standing. 

In this article, we’ll discuss some key details of Delaware Good Standing Certificates, including how to secure one for your Delaware company, the costs involved, and the reasons why you may need one.

Fast Delaware Certificate of Good Standing

You can get a Certificate of Good Standing for your Delaware LLC or corporation from a Delaware Commercial Registered Agent. A service like IncNow can secure a Certificate of Good Standing from the Delaware Secretary of State on the same day you place your order.

Order a Delaware Certificate of Good Standing by heading to IncNow’s user-friendly online order form. Provide some information about your company, submit your order, and IncNow can obtain the Certificate from the Delaware Secretary of State the same day.

You can also order a Delaware Certificate of Good Standing by phone or email:

Call IncNow to order at Call: 1-800-759-22481-800-759-2248

Email IncNow to order at agents@incnow.com.

How Much Does A Delaware Certificate of Good Standing Cost?

Some Delaware Registered Agent services, like IncNow, charge $149 to obtain a Delaware Certificate of Good Standing. Additionally, the Delaware Secretary of State charges Registered Agents a $50 fee for these Certificates.

What Is A Delaware Certificate of Good Standing?

A Delaware Certificate of Good Standing is an important business document providing proof that a company is legally compliant in Delaware. The Delaware Secretary of State signs the Certificate and certifies that the company is in “good standing” status with the state. Being in good standing means that the company:

A.) Actually exists and was legally formed in Delaware, and 

B.) Has met all its legal responsibilities in Delaware, including paying state franchise taxes and filing Annual Reports.

Other Names For Good Standing Certificates

This “status certificate” for companies is called different names depending on the state. Some states call this Certificate a:

• Certificate of Good Standing,
• Certificate of Existence, or
• Certificate of Authorization. 

Each of these names refers to a type of document which certifies that a company is active and in compliance with state laws.

Why Do I Need A Certificate of Good Standing From Delaware?

A Delaware Certificate of Good Standing is an important document proving your company is legally permitted to conduct business. You will need this Certificate for a number of business activities for your Delaware company, including:

• Opening a business bank account,
• Registering to do business in other states,
• Obtaining business loans and securing financing,
• Purchasing business insurance,
• Buying real estate, and more.

Requirements For A Delaware Certificate of Good Standing

Your Delaware company needs to be in good standing in order to obtain a Certificate of Good Standing from the Delaware Secretary of State. Here are the essential requirements Delaware companies need to meet to maintain good standing:

#1) Pay The Delaware Annual Franchise Tax On Time 

Delaware companies need to pay their Delaware Annual Franchise Tax before the deadline to keep their good standing status. Delaware corporations need to pay their franchise tax by March 1st each year, and Delaware LLCs need to pay by June 1st. 

Franchise tax payments can be submitted on the Delaware Division of Corporations website at corp.delaware.gov. You can also get help from services like defrantax.com.

#2) Have A Delaware Registered Agent

Every company in Delaware is required to have a Registered Agent within the state at all times. Your Delaware company will lose its good standing if it does not have a Registered Agent appointed in the state system. Even worse, the Delaware Secretary of State will administratively dissolve the company if you go without a Registered Agent for more than 30 days.

#3) File Annual Reports Each Year

This requirement is specific to Delaware corporations, not LLCs. Delaware law mandates that corporations file an Annual Report alongside their Annual Franchise Tax payment.

The Delaware Annual Report must include details about the company’s officers and directors, including their names and addresses.

Delaware Certificate of Good Standing FAQs

Find answers to your questions about Delaware Certificates of Good Standings and Good Standing Certificates.

What Information Is On A Certificate of Good Standing?

A Certificate of Good Standing, also known as a Certificate of Existence, typically contains the following details about a company:

• The company’s legal name,
• The company legal structure (LLC, corporation, or other entity type),
• The state of formation,
• The date the company was formed, and 
• The date that the Certificate was issued. 

What Does A Delaware Certificate of Good Standing Say?

A Delaware Certificate of Good Standing includes a short message from the Delaware Secretary of State. It states that the entity is officially recognized under Delaware law and is in good standing as of a specific date. The document ends with a digital seal and the Secretary of State’s signature at the bottom.

How Long Does it Take to Get A Certificate of Good Standing In Delaware?

IncNow can quickly get a Certificate of Good Standing from the Delaware Secretary of State. If you place your order before 4 PM Eastern time, we can send it to you on the same business day. The Delaware Secretary of State provides these Certificates as digital PDFs.

How Long Is A Delaware Certificate of Good Standing Good For?

Certificates of Good Standing from the Delaware Secretary of State don’t have an expiration date. But the requirement for how recent they need to be can vary depending on the situation. Usually, banks need to see a Certificate of Good Standing issued within the last 30 to 60 days to open a bank account.

For foreign qualification processes, most states will ask for a Certificate of Good Standing that’s been issued in the last 30 days.

What Is A Certificate of Existence?

A Certificate of Existence is essentially the same as a Certificate of Good Standing. It’s just another term some states use for the document that verifies a company’s good standing status.

Order a Delaware Certificate of Good Standing

The post How To Get A Delaware Certificate Of Good Standing appeared first on IncNow.

After forming a Delaware LLC or corporation, many business owners wonder, “What’s next?” One crucial part of running a business is maintaining your company’s good standing status.

In this article, we delve into what good standing means and guide you on how to maintain your company’s good standing status in Delaware. We also discuss how you can obtain a Delaware Certificate of Good Standing and why you may need one.

What Does “Good Standing” Mean?

Being in “good standing” means your company meets all its legal requirements in the state where it was set up. Generally, a company is in good standing if it has paid its state taxes and doesn’t owe any bills. Some states require corporations to also file an Annual Report to keep their good standing.

Keeping your company in good standing is essential for running a business. In states like Delaware, the Secretary of State can administratively dissolve a company if it loses its good standing for an extended period of time. This puts business owners at risk of losing their limited liability protection. This protection is crucial as it safeguards personal assets from business debts.

How To Maintain Good Standing In Delaware.

In Delaware, LLCs and corporations need to meet three major requirements to keep their good standing status:

1. Pay the Delaware Annual Franchise Tax on time,
2. Have a Delaware Registered Agent appointed at all times, and
3. File Annual Reports each year. This requirement only applies to Delaware corporations however. 

Delaware companies need to pay their Annual Franchise Tax on time to keep their good standing status. The deadline for corporations to pay the Delaware franchise tax is March 1st each year, and for LLCs, it’s June 1st. 

Delaware corporations are also required to file an Annual Report that includes a list of their directors. The Delaware Annual Report gets submitted along with the company’s franchise tax payment.

Delaware state laws also require every company registered in the state to have a Delaware Registered Agent appointed at all times. Business owners can be their own Registered Agent if they have a physical address in Delaware. However, you can also hire a Delaware Registered Agent service to help take this responsibility off your plate. 

What Is A Delaware Certificate of Good Standing?

A Delaware Certificate of Good Standing is a document the Delaware Secretary of State issues. It certifies that a business entity has met its legal obligations in Delaware and maintains a “good standing” status in the state.

Delaware Certificates of Good Standing are crucial for several key business activities. For instance, a Delaware LLC or corporation may need this certificate to:

• Open a business bank account, 
• Register to do business in other states, 
• Obtain business loans or secure financing, and
• Purchase real estate. 

This type of certificate has different names in different states. Some states also call it  a “Certificate of Existence” or a “Certificate of Authorization”.

How To Get A Delaware Certificate Of Good Standing.

You can purchase a Delaware Certificate of Good Standing for an LLC or corporation from a Delaware Commercial Registered Agent, like IncNow. As a Registered Agent, IncNow has access to the Delaware Division of Corporations’ online filing system and can quickly generate a Certificate of Good Standing for any Delaware company.

How Does A Company Lose Good Standing?

A business entity might lose its good standing status if the company:

A.)  Fails to file Annual Reports on time,

B.) Does not have a Registered Agent appointed, or

C.) Misses state franchise tax payments.

Oftentimes, a company can regain its good standing fairly quickly by correcting one of these issues.

What Happens When A Business Loses Good Standing?

Losing good standing status can cause serious problems for a business and its owners. States may impose fines and penalties on non-compliant companies. For example, in Delaware,  companies that don’t pay their annual state franchise tax to the Delaware Division of Corporations on time immediately lose their good standing. 

Additionally, the state charges late fees, which accrue interest, making it increasingly challenging to settle the tax debt. The company needs to pay its full tax balance to restore its good standing.

Furthermore, a company can be administratively dissolved or declared “void” for losing its good standing. For example, if a Delaware company fails to maintain a Registered Agent on the state’s website for more than 30 days, the Delaware Secretary of State will dissolve it.

How To Regain Good Standing In Delaware:

Delaware LLCs and corporations often lose their good standing status by missing the deadline for their Delaware Annual Franchise Tax payment. Delaware corporations need to pay their franchise tax by March 1st each year, and LLCs need to pay by June 1st.

You will need to pay the company’s overdue franchise tax balance in full to return its good standing status. This includes any late fees and interest penalties applied by the state. You can make payments for the Delaware state franchise tax directly on the Delaware Division of Corporations website at corp.delaware.gov.

After you submit your franchise tax payment, the Delaware Division of Corporations will automatically update your company’s status to good standing.

How To Revive a Delaware Company.

If your Delaware company has been administratively canceled by the Secretary of State, there’s a process to revive it and restore its good standing status.

Step 1: Pay The Overdue Delaware State Franchise Tax

First, pay all of the Delaware state franchise tax that the company owes. This needs to be done before the company can be revived. You can make these payments through the Delaware Division of Corporations website.

Step 2: Appoint A Delaware Registered Agent 

If your company lacks a Registered Agent in Delaware, appoint one. Consider hiring a Delaware Registered Agent service, like IncNow, to fulfill this role.

Step 3: File All Annual Reports (For Corporations Only) 

If your company is a Delaware corporation, you’ll need to submit any missing Annual Reports.

Step 4: File A Certificate of Renewal and Revival 

The last step is to submit a Certificate of Renewal and Revival to the Delaware Division of Corporations. This request asks them to reinstate your company and return its good standing status.

After the Renewal and Revival is processed and accepted, your company is reinstated and can conduct business legally again.

A Delaware Registered Agent service, like IncNow, can help you with the revival process and file the Certificate of Renewal and Revival in Delaware for you.

What Is The Delaware Annual Franchise Tax?

Delaware LLCs and corporations are required to pay an annual tax to the state to keep their good standing status. This Delaware Annual Franchise Tax is owed each year after the company is officially registered in Delaware.

To maintain good standing, Delaware companies must pay their franchise tax by the due date: June 1st for LLCs and March 1st for corporations each year.

For LLCs in Delaware, the Annual Franchise Tax is a set fee of $300. For corporations, the franchise tax amount varies and is calculated based on the number of shares the company is authorized to issue.

What Is “Void” Status For a Delaware Company?

The Delaware Secretary of State assigns a “void” status to an LLC or corporation if it fails to pay its state franchise tax for more than 3 years. Once a company goes void, the state will administratively cancel the entity. 

If your company is placed into void status, you can revive it by filing a Certificate of Renewal and Revival.

The post What Does “Good Standing” In Delaware Mean? appeared first on IncNow.

If you have applied for a loan with your corporation as the borrower, you may have heard the term “Delaware Certificate of Incumbency”. What is a Delaware Certificate of Incumbency and when do you need one?

Navigating corporate documentation is crucial for business operations, especially when engaging in financial transactions or significant changes in company structure. The Delaware Certificate of Incumbency, an essential document, evidences a corporation’s current authoritative figures.

This article delves into the importance of the Certificate of Incumbency, outlining its purpose, when it’s necessary, and how it stands in relation to other corporate documents like the Certificate of Good Standing.

What Is a Delaware Certificate of Incumbency?

An officer of a corporation signs a Delaware Certificate of Incumbency to identify the current officers and directors of the corporation. This Certificate may also list the company’s current shareholders.

The Delaware Certificate of Incumbency differs from corporate minutes, Unanimous Actions of the Directors, and bylaws. It is an internal statement of the corporate officer representing a snapshot in time to express what individuals currently are held-out with authority of an officer to act.

Overtime, corporations often reorganize or restructure their management. While lenders may ask for organizational documents of the company that state who was in charge at the beginning, the lender also wants to know who is in charge now. The Certificate of Incumbency details changes that have occurred since the entity’s initial organization.

The Secretary or President of the Corporation signs the Certificate of Incumbency. The Certificate can also undergo notarization to verify its authenticity, enabling recording in a public record.

When Does My Delaware Company Need a Certificate of Incumbency?

A Certificate of Incumbency is often requested when completing certain business functions, such as: 

• Establishing a bank account, 
• obtaining financing from a lender, 
• selling off all stock or assets, or 
• engaging in large business transactions.

Does a Certificate of Incumbency Need to be Filed?

No, companies do not need to file their Certificate of Incumbency with the state. An authorized Officer prepares and executes a Certificate of Incumbency, a private legal document not filed with the state of incorporation.

Do LLCs Need a Certificate of Incumbency?

A limited liability company (LLCs) can produce a Certificate of Incumbency if necessary. An LLC manager or officer signs a Certificate of Incumbency. It is a snapshot in time expressing what natural persons or entities currently are the officers, managers and members of the LLC.

Certificate of Incumbency vs. Certificate of Good Standing 

A Certificate of Incumbency and Certificate of Good Standing are two types of corporate documents that service completely different purposes. 

A state government issues a Certificate of Good Standing. This certificate confirms that a corporation or LLC is:

1. Duly formed under the state’s incorporation laws,
2. Has met all its legal obligations, such as submitting annual reports, and 
3. Has paid all necessary state taxes on time.

A Certificate of Incumbency is like a current directory of your company’s leadership. It names the individuals who have the authority to act on behalf of the company. A company officer actively prepares and signs this document.

Conversely, the Certificate of Good Standing serves as validation from the state that your business is compliant with applicable laws and regulations. It is a formal endorsement from the state.

The Certificate of Incumbency is helpful when you need to authenticate the identity and authority of the people managing your company’s affairs. This is typically required when opening new bank accounts or securing corporate financing.

The Certificate of Good Standing, however, is often necessary when a company seeks to register to do business in other states or needs to reaffirm its legitimacy and adherence to state laws for various business engagements.

To summarize, the Certificate of Incumbency provides verification of who currently has decision-making power within the company, whereas the Certificate of Good Standing assures that the company itself has maintained good legal standing with the state.

The post Does My Delaware Company Need a Certificate of Incumbency? appeared first on IncNow.

In 2024, over 30 million businesses will need to meet new compliance requirements. The Corporate Transparency Act (CTA) takes effect on January 1st and mandates U.S. companies to file Beneficial Ownership Information (BOI) reports with FinCEN.

All types of businesses will be impacted by the CTA. However, startups may find BOI reporting requirements especially challenging. The threat of severe civil and criminal penalties for noncompliance means that startups must prioritize BOI reporting to successfully launch their business.

In this article, we’ll break down how the Corporate Transparency Act and BOI reporting specifically affect startups. Additionally, we offer recommendations for early-stage companies to ensure full compliance.

What is a Startup Company?

People commonly use the term “startup” to describe companies aiming to quickly establish and grow. Rapidly growing startup companies often receive funding directly from private investors, like Venture Capital firms, Private Equity funds, or individual Angel Investors.

Do Startups Need to Comply With the CTA?

Most startups are incorporated as Delaware C-Corporations. This means that these companies are subject to the CTA and must file Beneficial Ownership Information (BOI) reports in 2024. BOI reports are directly submitted to the Financial Crimes Enforcement Network, or “FinCEN”, an arm of the U.S. Department of Treasury.

What are the Penalties for CTA Noncompliance?

Companies can incur civil penalties for CTA violations, including fines of up to $500 per day. Willful noncompliance with the reporting requirements can result in a criminal penalty, carrying a fine of up to $10,000 and a prison sentence of up to two years. Authorities can target a company’s senior officers or any beneficial owners who neglect the BOI reporting responsibilities.

How Do Startups Comply With the CTA?

To comply with the CTA, startups must file Beneficial Ownership Information reports directly with FinCEN. These BOI reports detail the significant owners and important decision-makers within the company. Specifically, reporting companies must disclose any individual who owns at least 25% of the company’s ownership interest. FinCEN identifies these individuals as “beneficial owners”.

Individuals listed in a company’s BOI report must provide specific information, including:

• Their full legal name
• Date of birth
• Current residential address
• An image of a valid ID document

The BOI report also contains details about the reporting company, such as:

• Full company legal name
• State of Incorporation
• Date of Incorporation
• The principal business address
• The federal tax ID number
• Any and all trade names or DBAs

Besides beneficial owners, the BOI report also needs to list all control parties. A control party is an individual with “substantial control” over the reporting company, meaning they significantly influence major company decisions.

Companies established after January 1, 2024, must include a third group in their BOI reports: the company applicants. These individuals play a central role in forming the business entity.

But merely filing an initial BOI report doesn’t ensure compliance with the CTA. The officers of a reporting company must consistently update the company’s Beneficial Ownership Information. Reporting companies must send BOI Updated reports to FinCEN within 30 days of any change in BOI data

Who are the Beneficial Owners, Control Parties, and Company Applicants in a Startup?

In a corporation, beneficial owners often mean the company’s shareholders. However, a person with indirect ownership in a reporting company might also qualify as a beneficial owner. For example, employees with stock options or a type of convertible interest in a reporting company can become beneficial owners if their shares reach the 25% threshold.

Control parties in a corporation usually comprise the company’s senior officers, executives, and the board of directors. However, a person might qualify as a control party if they hold significant responsibilities in any of the following areas:

• Business Operations: Determining the nature and scope of the business and initiating new business lines
• Finances: Overseeing major expenditures, asset sales or leases, equity issuance, and senior officer compensation
• Corporate Structure: Managing company reorganization or mergers, modifying corporate documents, and appointing or removing senior officers

New companies must identify two company applicants in their reports. Typically, the first company applicant is the primary individual responsible for initiating the formation of the business entity. In a startup, this person is usually the founder who decided to incorporate the company.

The second company applicant is the person who submits the incorporation documents to the Secretary of State’s office. If a third-party incorporation service does the filing for a company, the second company applicant will be an employee or representative of that service company.

Why is BOI Reporting Challenging for Startups?

The inherent nature of startups makes BOI reporting a complex task. The CTA mandates that reporting companies continuously update their Beneficial Ownership Information with FinCEN.

This means that companies must complete BOI Updated reports whenever the initially reported information changes. For example, if a startup secures a new investor with an ownership stake greater than 25%, or if the company introduces a new CEO, they must file a BOI Update report.

Given the rapid growth that some startups experience, these companies might frequently update their BOI reports as new investors join or leadership roles shift. Also, many startups offer stock options to their early employees as incentives, which can add complexity to the company’s ownership structure.

What Defines Ownership Interest for BOI Reporting?

Commonly, beneficial owners are those with direct ownership in a reporting company, such as corporate shareholders. But beneficial ownership can also include other forms of equity.

For BOI reporting purposes, ownership interest encompasses:

• Equity, Stock, or Voting Rights: This interest might or might not come with voting rights
• Options or Privileges: Stock options and related entities like puts, calls, or other options to buy or sell equity, stock, or voting rights
• Convertible Instruments: These instruments, such as convertible equity or voting rights, count as ownership interest, irrespective of any payment needed for a conversion
• Future Arrangements: Future considerations like warrants or rights to buy or sell equity, stock, or voting rights also count
• Capital or Profit Interest: Interests in a company’s assets or profits, often seen in LLCs which might refer to these as “units”

An individual with any ownership interest in a reporting company can become a beneficial owner if that interest surpasses 25%.

How Can Startups Prepare for BOI Reporting?

Proactive measures can ensure that reporting companies file accurate and timely BOI reports.

Step #1) Understand the Requirements and Educate Stakeholders:

Startups should prioritize education and communication. By aligning all relevant stakeholders with the BOI reporting requirements, collaboration around compliance can flourish. It’s vital for everyone in the organization, not just beneficial owners, to understand the implications of the Corporate Transparency Act.

Step #2) Implement Workflows for Data Collection and Storage:

With multiple beneficial owners, startups need efficient processes for data collection. Given the sensitive nature of some required data, like ID images, secure storage becomes crucial.

Step #3) Develop Systems to Track Changes:

Frequent changes in ownership and leadership positions are common in startups. As such, they need robust systems to monitor these changes, ensuring they always maintain compliance.

The post What Startups Need to Know About the Corporate Transparency Act appeared first on IncNow.

If you run a small business, you’ve probably never heard of the Financial Crimes Enforcement Network, or “FinCEN”. However, starting in 2024, over 30 million businesses in the U.S. will need to get familiar with this government agency.

With the Corporate Transparency Act going into effect, businesses of all sizes are preparing for new federal compliance requirements. Starting January 1, 2024, LLCs and corporations in the U.S. will need to submit Beneficial Ownership Information reports (aka BOI reports) to FinCEN.

Here we explain what FinCEN is, and why it’s important for small businesses to know about Beneficial Ownership Information reporting.

What is the Purpose of FinCEN?

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury. FinCEN’s core mission is to fight financial crimes, like money laundering and terrorism financing. FinCEN works closely with banks and other financial institutions to scrutinize financial transactions and prevent illegal activity.

FinCEN’s primary responsibilities include:

• Analyzing financial transaction reports to identify patterns and trends indicating money laundering.
• Sharing financial intelligence with law enforcement and regulatory agencies, including the FBI, IRS, Secret Service, and other local or state departments.
• Issuing regulations for financial institutions regarding filing transaction reports, implementing anti-money laundering programs and identifying terrorism financing.
• Managing financial sanctions programs imposed by the U.S. Department of Treasury and the Office of Foreign Asset Controls.

FinCEN receives over 2 million reports per year from banks and similar entities. The agency maintains this data to assist law enforcement with investigations.

What is a FinCEN Report?

Business owners need to submit Beneficial Ownership Information (BOI) reports before the specified deadlines in order to comply with the Corporate Transparency Act. FinCEN requires business entities to disclose personal information about the beneficial owners, control parties, and company applicants involved in the company.

What Gets Reported to FinCEN?

A reporting company needs to report the following information to FinCEN for each individual included in a BOI report:

• Full name,
• Date of birth,
• Residential address, and
• A picture of a valid ID document.

Valid ID documents include driver’s licenses, passports, and government issued IDs that are not expired.

BOI reports also require information about the reporting company itself, including:

• The company’s full legal name,
• Business entity type,
• Date of formation,
• Principal business address,
• A Federal tax ID number (EIN, ITIN, or SSN), and
• Any all trade names the company uses.

Trade names include publicly filed DBAs, as well as any unofficial trade names that company uses. Business owners should also consider reporting any online domain names that the company uses for business purposes.

Reporting companies need to keep their BOI reports up to date in order to remain compliant with the CTA. Business owners will need to submit a BOI Updated report to FinCEN if any of the information included in the original report changes. For example, if a beneficial owner changes their residential address, or a new CEO is appointed. Reporting companies need to file BOI Updated reports within 30 days of any change.

Who is Included in a FinCEN Report? 

FinCEN requires business entities to disclose personal information about three types of individuals involved in the company:

• beneficial owners,
• substantial control control parties, and
• company applicants

Let’s break down who needs to be included in a Beneficial Ownership Information report:

Who are Beneficial Owners in a FinCEN Report?

FinCEN considers beneficial owners to be individuals who hold at least 25% of the ownership interest in a reporting company. The most common examples of beneficial owners are Members in an LLC, and stockholders in a corporation. However, there are other ways that an individual can be considered a beneficial owner without being a direct owner in a reporting company.

For example, a person may have an interest just in the profits of an LLC, or some form of convertible stock options in a corporation. If these individuals meet FinCEN’s threshold of 25% ownership, they will need to be reported as beneficial owners in the company’s BOI report.

Who are Control Parties in a FinCEN Report?

FinCEN requires reporting companies to disclose any and all individuals who exercise “substantial control” over important company decisions. These individuals are known as “control parties”.

Control parties include anyone who has authority to act on behalf of the company, to:

• Enter or terminate contracts,
• Appoint or remove senior officers and board members,
• Sign contracts, and
• Open business bank accounts.

Control parties can also have significant influence over important business decisions, such as:

• Selling or transferring company assets,
• Reorganization of the company,
• Major expenditures and investments,
• Amendments to corporate documents, like incorporation or bylaws,
• And other strategic decisions.

In general, “control parties” is a catch-all term that includes any person with significant responsibilities within a reporting company.

Who are Company Applicants in a FinCEN Report?

New companies formed after January 1, 2024 need to include their company applicants in their BOI report. Companies already in existence before 2024 do not need to provide their company applicants.

Company applicants are the individuals who were most involved in the process of forming the company. Every reporting company has two company applicants that need to be included in the BOI report:

Company Applicant #1: Requests Company Formation

The first company applicant is the individual who is most responsible for requesting that the LLC or corporation be formed.

Company Applicant #2: Files the Company Formation Documents

The person who directly files the company formation documents with the Secretary of State’s office also needs to be reported as a company applicant.

If an incorporation service assisted with forming the company, the second company applicant will be the employee who directly submitted the formation documents to the state.

Why Does FinCEN Impact Small Businesses?

Starting in 2024, businesses of all sizes will need to become familiar with FinCEN. This is because the recently passed Corporate Transparency Act (CTA) mandated FinCEN to create a registry of beneficial owners and important decision makers associated with U.S. companies.

FinCEN requires legally formed business entities operating in the United States to complete Beneficial Ownership Information (BOI) reports. These requirements impact nearly all limited liability companies (LLCs) and corporations.

Business owners need to file complete and accurate BOI reports for their companies before the deadlines. Failing to meet the reporting requirements can result in serious penalties, including up to $500 per day in civil fines, and even up two years in jail.

Some business owners and solo entrepreneurs may think that FinCEN’s BOI reporting requirements don’t apply to them. However, the Corporate Transparency Act directly targets small businesses. Large operating companies are able to get an exemption from FinCEN if they hire more than 20 full-time employees, a physical office in the U.S., and over $5 million in revenue.

What Does FinCEN Have to Do With Beneficial Ownership Information?

FinCEN stores Beneficial Ownership Information in a secure government database. Company BOI reports are not openly available to the public. The BOI database can only be accessed by law enforcement agencies and banks.

FinCEN grants access to Beneficial Ownership Information to various Federal, State and local agencies to assist with activities concerning national security, intelligence and law enforcement.

Banks and other financial institutions can only obtain Beneficial Ownership Information under certain circumstances. A bank needs to get consent form a reporting company itself before it can gain access to the company’s BOI report.

Should I Get a FinCEN Identifier Number?

FinCEN Identifiers, or “FinCEN IDs”, can be helpful for individuals who own multiple companies, or anticipate needing to update their Beneficial Ownership Information in the future. A FinCEN ID is a unique identifying number assigned by FinCEN to both individuals and reporting companies.

Obtaining a FinCEN ID requires submitting an application to FinCEN that includes all of the necessary information for a BOI report. Instead of providing all of their information multiple times, an individual can just input their FinCEN ID number instead.

Reporting companies can use FinCEN IDs to help speed up the process of updating their BOI reports. An individual can input their FinCEN ID and simply make any necessary changes to their information instead of making the company resubmit their information multiple times.

The post What is FinCEN and What are BOI Reports? appeared first on IncNow.

In a time where financial transparency is essential, the Corporate Transparency Act (CTA) brings new compliance requirements for U.S businesses. Understanding these new requirements is crucial for business owners, managers, and stakeholders to avoid significant penalties, including fines and jail time.

Starting January 1st, 2024, U.S. businesses will need to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). In this article breakdown exactly what businesses are impacted by the Corporate Transparency Act and what they need to do to comply.

What is the Corporate Transparency Act? Understanding CTA

The Corporate Transparency Act (CTA) is a federal law mandating business entities, like LLCs and corporations, to report specific information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

FinCEN is a part of the U.S. Department of Treasury and is in charge of maintaining a beneficial owner database. FinCEN’s database isn’t open to the public; only law enforcement agencies and banks can access it.

The goal of the Corporate Transparency Act is to combat financial crimes, such as money laundering, by revealing the significant individuals behind a company and its operations.

Who is Impacted by the Corporate Transparency Act?

The CTA impacts nearly all business entities in the United States, including LLCs and corporations.

Any business entity created by filing documents with a Secretary of State’s office is required to comply with beneficial ownership reporting requirements under the CTA.

Additionally, foreign business entities incorporated in other countries must also report their beneficial owners if the company is registered to do business in the United States.

How Does the Corporate Transparency Act Impact Small Businesses? 

The Corporate Transparency Act reporting requirements directly impact small businesses. The goal of the CTA is to combat the use of shell companies for illegal activity, like money laundering. This specifically targets companies with small amounts of business activity.

On the other hand, FinCEN provides reporting exemptions for “large operating companies”. FinCEN considers a large operating company to be a business that has 20 full-time employees, a physical office address in the U.S., and reports more than $5 million on its federal tax return. 

Do Single-Member LLCs Report Beneficial Owners to FinCEN?

Yes, Single-Member LLCs must report their Beneficial Ownership Information to FinCEN as part of the Corporate Transparency Act. A BOI Report for a Single-Member LLC should be fairly straightforward, since the company typically has one person who is both the Member and Manager. 

Do Sole Proprietorships Need to Complete BOI Reports?

No, sole proprietorships do not need to submit Beneficial Ownership Information reports to FinCEN. The Corporate Transparency Act does not classify businesses run as sole proprietorships as reporting companies, as they are not legally formed entities.

The CTA requires entities created through a state filing, such as LLCs, corporations, limited partnerships, and certain business trusts, to file BOI reports with FinCEN.

What are the Corporate Transparency Act Reporting Requirements?

One of the major introductions of the CTA is the “Beneficial Ownership Information” (BOI) Report. Many businesses are familiar with state-filed incorporation documents, however, BOI reports are federally mandated and are submitted directly to FinCEN.

 Here’s what’s included in a FinCEN BOI report:

•     Beneficial Ownership Information:

Companies need to provide data about significant individuals involved in the business, including, beneficial owners, control parties and company applicants. This means going beyond just the owners; you also need to consider managers and key decision-makers.

•     Detailed Personal Information:

FinCEN mandates that companies provide details for each individual being reported:

➢    Full names,

➢    Residential addresses,

➢    Rates of birth, and

➢    Valid identification document (e.g., driver’s license, passport, or government issued ID)

Completing a FinCEN BOI report requires uploading an image of a valid ID document for every individual being reported. Examples of valid ID documents include state issued driver’s licenses, U.S. or foreign passports, or government issued IDs.

•     Reporting Company Information

You also need to report specific information about the company itself to FinCEN. This information includes:

➢    Full legal name (with corporate ending),

➢    Entity type (LLC or corporation),

➢    Jurisdiction (state of formation, incorporation, or registration),

➢    Principal business address,

➢    Federal tax ID number (EIN), and

➢    All trade names or DBAs (Doing Business As).

A reporting company needs to report any trade names that it uses for business to FinCEN. These include filed trade names, like a publicly filed DBA, and even unfiled trade names, like a domain or website name.

Who is Included in a Beneficial Ownership Information Report?

Businesses might wonder about the specifics of who should be included in the Beneficial Ownership Information Report. FinCEN requires companies to report all of their beneficial owners, control parties, and company applicants.

Let’s dive into who these people are:

Who are Beneficial Owners?

Beneficial owners are people who have an ownership stake in a reporting company. More specifically, FinCEN considers anyone who owns at least 25% of the interest in a company to be a beneficial owner.

Beneficial owners may be direct owners, like Members in an LLC or shareholders in a corporation, or indirect owners, like beneficiaries of a trust, or holders of convertible stock options.

Who are Control Parties?

Control parties are people who have significant influence over a company’s strategic decisions. Control parties typically include officers in corporations, members with majority voting rights in LLCs, and individuals with authority over certain company actions, like signing contracts or opening bank accounts.

Examples of control parties may include company presidents, secretaries, treasurers, chief officers, general counsel, or anyone else with a similar title.

Who are Company Applicants?

The BOI report requires details about the individuals who initiate and finalize the company formation process.

If you used an incorporation service to form your LLC or corporation, the agent who submitted your company formation documents to the state needs to be reported as a company applicant. The individual who was ultimately responsible for requesting the company to be formed also needs to be reported.

Not every company needs to report company applicants. FinCEN only requires new companies formed starting in 2024 to report their company applicants. Existing companies registered before 2024 aren’t required to include company applicants in their BOI report.

When are FinCEN Beneficial Ownership Reports Due?

Timing is crucial when it comes to complying with the Corporate Transparency Act. Starting in 2024, new businesses have a strict 30-day window to file their Beneficial Ownership Information Report. However, companies already formed before 2024 need to submit their reports by January 1st, 2025.

Moreover, with any changes in beneficial ownership details, businesses have a mere 30 days to an updated BOI report to FinCEN.

What if You Don’t Comply with the Corporate Transparency Act?

The CTA isn’t just a guideline—it’s a requirement. Failing to adhere to the reporting requirements could result in substantial fines and potential jail time.

Beneficial Ownership Information Reports need to be complete, accurate, and submitted to FinCEN on time. Business owners face civil penalties of up to $500 in fines per each day that an infraction continues.

Willful non-compliance with BOI reporting requirements, or providing false information to FinCEN, can result in criminal penalties, including up to a $10,000 fine and 2 years imprisonment.

How to Prepare for Beneficial Ownership Reporting: Steps for Businesses

To ensure smooth compliance with the CTA, businesses should take proactive measures before the filing deadlines:

•     Develop Systems for Data Collection:

Establish a standardized method to gather the required information from every beneficial owner within the organization. This might involve creating a dedicated team or designating an individual responsible for this task.

•     Stay Updated with Beneficial Ownership Information:

Given that all reported details to FinCEN must remain up-to-date, it’s vital for businesses to maintain a system to track changes. This could involve periodic audits or regular checks to ensure accuracy in the information held.

The Corporate Transparency Act is a marked shift in the compliance landscape for U.S. businesses. By understanding the reporting requirements, and diligently preparing for them, companies can ensure they operate within the law and avoid harsh penalties. 

The post How Does the Corporate Transparency Act Impact Small Businesses? appeared first on IncNow.