Navigating the Corporate Transparency Act

In 2021, a law called the Corporate Transparency Act (CTA) was enacted to strengthen the U.S. financial crime monitoring system. The aim is to make certain entities, including those in the health care sector, share information about their ownership and control with the U.S. government. The Beneficial Ownership Information Reporting Rule (BOI Rule), an integral part of the CTA, enhances the government’s ability to combat various financial crimes through beneficial ownership information.

This update explores the reporting considerations that apply to health care companies, including hospitals, health systems, and those organized under common health care models such as joint ventures (JVs), friendly professional corporations (PCs), or professional services limited liability companies (PLLCs).

Under the BOI Rule, every U.S. corporation, limited liability company, or registered entity is obligated to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), unless they qualify for one of the 23 specified exemptions. Reporting Companies formed before January 1, 2024, must report by January 1, 2025, while those formed between January 1, 2024, and December 31, 2024, have a 90-day window from the notice of formation to comply.

The reporting process involves providing details about each beneficial owner, including their full legal name, date of birth, current residential address, a unique identifying number from a valid U.S. passport, state ID, or driver’s license, along with an image of the document displaying the unique identifying number.

A “beneficial owner,” as defined by the BOI Rule, encompasses individuals who directly or indirectly own or control at least 25% of the ownership interests of the Reporting Company or exercise substantial control over it. The Rule outlines criteria for substantial control, such as serving as a senior officer, influencing appointments or removals, directing key decisions, or exercising any other form of substantial control.

Following the initial report, Reporting Companies must promptly notify the U.S. government of any changes within 30 days. Non-compliance with reporting requirements may result in civil or criminal penalties.

For health care entities structured under the friendly PC or PLLC model, exemptions like “large operating companies” and “subsidiaries” may be applicable. The BOI Rule also extends to U.S.-organized management services organizations (MSOs), PCs, or similar entities, unless exempt.

MSOs often qualify for exemptions as large operating companies. PCs/PLLCs, though less likely to meet criteria due to size, may qualify if consolidated with the MSO for tax purposes. JVs, commonly used in health care, may be exempt based on ownership and control structures, while hospitals and health systems may qualify for exemptions under the large operating company or tax-exempt entity categories.

Publicly traded health care companies or SEC reporting issuers, along with their controlled or wholly owned subsidiaries, are exempt from reporting.

Considering potential updates in interpretative guidance and ongoing obligations triggered by the initial report, some companies may opt to delay determinations for existing entities until closer to the reporting deadline. Each situation warrants careful consideration, and we recommend seeking guidance to ensure compliance with reporting obligations. If you have any questions in regard to CTA, schedule a call with one of our attorneys at Dike Law Group or at dorismeet.com.