In 2021, in the wake of scandals involving the use of shell companies to hide assets, Congress passed legislation known as the Corporate Transparency Act (the “CTA”). The broad legislation is aimed at people who use LLCs and corporations as “shell” companies to hide assets. For years the legislation sat dormant while official guidelines were drafted, but now the CTA is going into effect on January 1, 2024.
As presently written and interpreted, the CTA will impose new requirements on all LLCs, corporations, and nonprofit corporations, such as HOAs and condominium associations. All existing HOAs and condos will have one year to meet the CTA’s requirements, until January 1, 2025. For HOAs and condos formed in 2024, there will be a 90-day compliance period. Beginning in 2025, the filing period for new companies will decrease to 30 days.
The CTA requires every nonprofit corporation to report its full name, address, and other identifying information such as its federal tax identification number. Further, companies must identify their “beneficial owners”, which includes the directors and officers of an HOA. Beneficial owners must provide their full legal name, their date of birth, their current address, and a “unique identifying number.” A unique identifying number means a non-expired passport, a non-expired government-issued identification card, or a non-expired driver’s license. A photo or scan of the passport, identification card or driver’s license must be submitted.
The CTA contains carve-outs for certain entities, such as publicly traded companies or large entities which already have substantial reporting requirements. Community Association Institute, the largest trade group for HOAs and condominiums, has requested that HOAs and condominiums be exempted, but as yet, the CTA requires HOAs and condominiums to meet its requirements.
A failure to comply with the CTA can carry significant penalties. Fines of up to $10,000 are possible, and a person could be imprisoned for up to 2 years for a willful failure to comply.
Although it should be obvious that an HOA or a condominium association could not be used as a shell company or as a means to hide assets, we worry that the additional reporting requirements may make it more difficult to recruit volunteers to sit on HOA and condominium boards of directors. We encourage owners to reach out to their legislators in Congress to urge them to exempt HOAs and condos from the reporting requirements.
Beginning in 2024, our office will be assisting our HOA and condominium clients with complying with the CTA’s requirements. Although the 1-year reporting requirement may seem like it is a long way off, we encourage HOAs and condominium associations to get ahead of the legislation and not to delay reporting. Please feel free to contact our office to discuss how to meet the CTA’s requirements.
Carolina Common Elements 