Business

The Corporate Transparency Act (“CTA”) is a federal law that was enacted in 2021 to stop individuals in foreign countries from illegally moving money into the United States.  The CTA requirements for certain types of corporate entities in the United States.  The Federal Crimes Enforcement Network (“FinCEN”), is the federal agency that is charged with enforcing the Corporate Transparency Act. FinCEN has decided that community associations like condos, cooperatives and homeowners’ associations are required to comply with the CTA or face stiff penalties.

What are the potential penalties for failing to comply with the CTA?

The penalties right now for failing to comply with the CTA are as follows:

• Civil penalty of up to $591 for each day that a violation continues.
• Criminal penalty of up to $10,000 and possible imprisonment of up to 2 years.

The complexity with community associations is that the people who have to file with FinCEN include board members, officers and others connected to the association who are considered Beneficial Owners under the CTA. As the board members and officers’ information changes or people change positions, updated filings have to be made to comply with the CTA. Boards need a centralized way to comply with CTA in which they don’t have to worry that all their other board members, officers and Beneficial Owners have done what they individually have to do in order for the association and its Beneficial Owners to comply so that no one risks the harsh penalties under the CTA.

Are Community Associations Required to Comply with the Corporate Transparency Act?

The Corporate Transparency Act defines a domestic reporting company as a corporation, limited liability company, and any other entity created by the filing of a document with a secretary of state or any similar office in the United States. Almost all condo, cooperative and homeowners’ associations are organized as nonprofit corporations and would be domestic reporting companies under the Corporate Transparency ActFinCEN has clarified that community associations are definitely covered, and their beneficial owners have to comply.

What are the reporting requirements for Community Associations under the CTA

All reporting companies are required to file beneficial ownership information reports with FinCEN.  The CTA defines a beneficial owner as any individual who, directly or indirectly, (i) exercises substantial control over the entity or (ii) owns or controls 25% or more of the ownership interests.  While FinCEN has adopted a broad definition of what constitutes substantial control, and while many definitions presumably only apply to for-profit entities, it will typically include directors and officers of a nonprofit corporation, such as a community association, as it includes individuals that direct, determine, or have substantial influence over the decisions of the reporting company. According to FinCEN, a reporting company will have to submit the following information about the corporate entity:

• Its legal name;
• Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
• The current street address of its principal place of business;
• Its jurisdiction of formation or registration; and
• Its Taxpayer Identification Number.

The person who submits the report, known as the company applicant, will need to provide the following information:

• The individual’s name;
• Date of birth;
• Address; and
• An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.

An image of the identification document used to obtain the identifying number must be submitted.  If the company applicant works in corporate formation—for example, as an attorney or corporate formation agent—then the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s residential address.

What are the reporting requirements for beneficial owners under the Corporate Transparency Act?

FinCEN will also require the following information to be reported for everyone that qualifies as a beneficial owner:

• The individual’s name;
• Date of birth;
• Residential address; and
• An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.

An image of the identification document used to obtain the identifying number must be submitted. The only acceptable forms of identification are:

• A non-expired U.S. driver’s license (including any driver’s licenses issued by a commonwealth, territory, or possession of the United States);
• A non-expired identification document issued by a U.S. state or local government, or Indian Tribe;
• A non-expired passport issued by the U.S. government; or
• A non-expired passport issued by a foreign government (only when an individual does not have one of the other three forms of identification listed above).

How often will community associations be required to submit reports under the Corporate Transparency Act?

Community associations that are in existence as of January 1, 2024, which are subject to the CTA, must submit beneficial owner information reports to FinCEN on or before January 1, 2025.  After an initial report is submitted, any changes to the beneficial ownership information must be reported to FinCEN within 30 days.  As directors and officers and their information changes, updated reports will have to be submitted in that short timeframe. That means at least once a year after the annual meeting, a new filing will have to be submitted if the board members or officers change.

Governing a cooperative or condominium association requires maintaining order and ensuring financial stability. Late fees and fines are essential tools for boards to achieve these goals, but their implementation must be carefully considered. This article explores the legal framework and best practices surrounding late fees and fines in New York, focusing on three key questions:

1. Authority: Boards must first establish their authority to impose these charges. For condominiums, the power to fine is typically granted in the bylaws. However, co-op boards must rely on specific provisions in their proprietary lease or, in some cases, inherent authority based on their ability to set cash requirements and house rules. It is crucial for boards to understand and adhere to their specific governing documents.
2. Enforceability: The rule or regulation a fine is based on must be enforceable. Boards must ensure their rules are valid before enforcing them through fines.
3. Reasonableness: Fines and late fees must be reasonable and not constitute unenforceable penalties. Courts have provided guidance on this issue, but they remain fact sensitive analyses. Staying lower than a state prohibited usury rate of interest is a good idea. Additionally, co-ops in New York are subject to the Housing Stability and Tenant Protection Act, which limits late fees to 8% of the monthly maintenance charge.

In conclusion, while late fees and fines are powerful tools for co-op and condo boards, their implementation requires careful consideration and adherence to legal and regulatory boundaries. By understanding the authority to impose these charges, ensuring the enforceability of the underlying rules, and establishing reasonable fee structures, boards can effectively maintain order and financial stability within their communities while minimizing the risk of legal challenges.