A new federal law, the Corporate Transparency Act, recently went into effect as of January 1, 2024.

This law has serious implications for hotel owners across Texas that have $5 million or less in annual revenue and employ 20 or fewer employees.

Hotel businesses owners need to be aware of new federal reporting requirements that will apply to both existing and newly formed organizations. These new requirements will apply to many corporations, LLCs, and limited partnerships physically operating in the U.S. that employ 20 or fewer people and have $5 million or less in annual revenue.

The Corporate Transparency Act (the “CTA”) was enacted by Congress in 2021 to prevent money laundering and other illicit activity which is facilitated by bad actors who conceal their identity by using U.S. shell companies. The CTA went into effect on January 1, 2024, and requires many corporations, LLCs and limited partnerships formed or doing business in the U.S. to make a “Beneficial Ownership Information Report” (the “BOI Report”) to the United States Department of Treasury Financial Crimes Enforcement Network (“FinCEN”).

It is imperative that all Texas business owners, in particular those who run smaller operations with $5 million or less in annual revenue and 20 or fewer employees, pay close attention to CTA’s reporting requirements. Non-compliance with the CTA can result in serious civil and criminal liability. The CTA exempts many large or publicly traded companies (as well as their subsidiaries) from this reporting requirements.

As a result, while many larger hotel ownership and management companies will not be subject to the new reporting requirements, many small and independent operations that are operated as an LLC or under similar legal structures will be responsible for making a BOI report to FinCEN by the reporting deadlines outlined in this article. 

Which entities the CTA applies to:

The CTA applies to business organizations referred to as “Reporting Companies” (subject to a number of exceptions discussed below). Reporting Companies are defined broadly as corporations, LLC’s or any other entities that are created with a filing of a document with the Secretary of State in any U.S. state—including the businesses registered with the Texas Secretary of State. Foreign companies that are registered to do business in any U.S. state also qualify as Reporting Companies.

The CTA sets forth 23 types of entities that are exempt from its BOI Report requirements; including exemptions for publicly traded companies, “large operating companies” (defined below), non-profits, and the subsidiaries of any exempt organization.

A three-part test must be met for a company to fall under the “large operating company” exemption: (1) the entity must employ more than 20 full-time employees, (2) the must have filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales, and (3) it must have an operating presence at a physical office in the U.S.

Information that should be included in a BOI Report: 

The CTA requires that Reporting Companies disclose certain information about each of their Beneficial Owners (defined below). The BOI Report must include the name, date of birth, address, and an identifying number (such as a driver’s license or passport number).

Who qualifies as a Beneficial Owner?

A beneficial owner is defined by the CTA as an individual who directly or indirectly: (1) exercises substantial control over the company, or (2) owns or controls 25% or more of the entity’s ownership interest. Under the CTA, even non-owner senior employees/senior officers who exercise substantial control over the entity must be included in the BOI Report.

THLA recommends consulting with an attorney or financial professional if you are uncertain whether a non-owner senior employee or officer exercises substantial control and thus qualifies as a Beneficial Owner under the CTA. Due to the severe penalties imposed by the CTA, if you are unsure whether a non-owner senior employee is a Beneficial Owner, it is advisable to err on the side of caution and include that individual in your BOI Report.

Beneficial owners cannot be corporate or business entities under the CTA. If a Beneficial Owner of a Reporting Company is another corporation or LLC, the Reporting Company will have to clarify its corporate ownership structure to indicate the natural persons who ultimately own and benefit from the Reporting Company.

Deadlines for the BOI Report:

•  January 1, 2025, is the reporting deadline for all Reporting Companies formed before January 1, 2024.
• 90-days from the date of formation for all Reporting Companies formed after January 1, 2024.
• 30-days from the date of formation for all Reporting Companies formed after January 1, 2025.

Filing Requirements:

The BOI Report must be filed according to the above noted deadlines.  After the initial filing, there is not a subsequent annual filing requirement under the CTA, except to the extent of meeting the requirements to keep your BOI Report up to date.

After your initial BOI Report, the CTA specifically requires Reporting Companies to amend their report within 30-days of certain changes to Beneficial Owner information; such as ownership changes, name changes, changes of address, or operational changes in which there are new individuals who exercise substantial control of the company.

What are the penalties for non-compliance?

Non-compliance with the CTA can result in severe civil and criminal penalties. Civil penalties are imposed at $500 for each day the violation persists. The criminal penalties under the CTA include a fine of not more than $10,000 and imprisonment for not more than 2-years (or both).

How do I file?

Reporting Companies file their BOI Report electronically through a portal located on the FinCEN’s Website (link below). The Report is free of charge.

https://boiefiling.fincen.gov/