Condominium and Homeowners’ Association Board Members Need to Register Under The Federal Corporate Transparency Act

February 7, 2024
Aaron S. Marines

Photo by Glenn Carstens-Peters on Unsplash

Most small businesses in the US need to register with the Government due to the Corporate Transparency Act (CTA).  I’ll get right to the point: most Condominium and Homeowners Associations need to register, too. This means that every Board Member will need to provide the following information:

  • Name;
  • Date of birth;
  • Address; and
  • Copy of either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State.

Here are some frequently asked questions about the CTA as it relates to community associations.

What is the Corporate Transparency Act?

The CTA was passed in the beginning of 2021. We wrote about it back then. It was intended to curb money laundering and “illicit finance.” For many companies in the US, the people who actually own the company – and are responsible for the finances of the company – are hidden behind layers of ownership, holding companies, limited partnerships, fictitious names and similar legal entities. The CTA was intended to cut through all of these layers. The CTA requires the “beneficial owners” of most companies to register their names and identities with federal government.  The Financial Crimes Enforcement Network, or “FinCEN” the agency that enforces the CTA, says:

The purpose of this law is to make it more difficult for smaller business entities to engage in money laundering by requiring these entities to provide information about the natural persons who directly or indirectly own or operate the entity.

How does the CTA affect Condominiums and HOAs?

No one is accusing community associations of laundering money. Unfortunately, the CTA casts a very wide net. It applies to any type of legal entity that has any state registration. That includes corporations, LLC’s, Limited Partnerships, Business Trusts, etc. Most condominiums and HOAs are corporations. Because of this, the CTA covers community associations.

Are there any exemptions?

There are a few exemptions from the CTA. If the entity has more than 20 employees or has more than $5 million in gross receipts annually.

The CTA only applies to entities that are filed with the state. Some associations – especially if they are older – are “unincorporated associations.”  These probably do not have to register with FinCEN.

There is an exemption for non-profit organizations that are qualified under Section 501(c) of the Internal Revenue Code. Even though condominium and homeowners’ associations are non-profit organizations, this exception does not apply. Community associations are generally subject to Section 528 of the Internal Revenue Code. They usually do not meet the requirements of a charitable organization under Section 501(c).

Who has to register their personal information?

The CTA requires “beneficial owners.”  That is defined as someone who either owns at least 25% of the entity or someone who “exercises substantial control over the entity.”  Even though Board Members do not own 25% of any community association, all of the Board Members exercise substantial control. FinCEN has published a “Small Entity Compliance Guide” that makes it very clear that Board Members and Officers are “beneficial owners” who must register.

When is registration required?

For entities that existed before January 1, 2024, the beneficial owners need to register before the end of the year. New entities have to register within 90 days after being formed.

Entities also need to update the registration within 30 days of any changes. For condominiums and HOAs, this means that the CTA registration needs to be changed after every election or any time a Board Member resigns or is replaced.

How do we register?

Entities are required to report online with FinCEN. The “company applicant” who fills out the registration needs to have an account with FinCEN to file reports. A company applicant can be the entity itself, or someone like a law firm or accountant. RKG Law is a registered company applicant. We are completing registrations for many companies and can register any community association that requires it. That includes sending out reminders before elections so that the registration can be updated.

What happens if we do not register?

The penalties under the CTA are really serious. From the FinCEN website:

a person who willfully violates the … reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

It is not exactly clear who would be penalized. If an Association just decides to ignore the rule, then the Association will probably be fined. If a Board Member gives false information, I expect that individual to be subject to penalties. In any event, the penalties are steep. Our recommendation is that Associations comply 100%.

What happens to my personal information?

I understand that Board Members (or prospective Board Members) are nervous about providing personal information required by the CTA. FinCEN says that this information is just stored in a database and is only accessible by their agency. My personal opinion is that the government already has my name, address and driver’s license and passport. So, I am not giving up any privacy by filling out this registration.

Board Members should be concerned about who they give information to in order to register with FinCEN. For law firms, that information will be confidential client information. Firms like RKG Law – and many others – are used to handling private, personal information, and have security measures like encryption to make sure Board Members’ personal information is not disclosed.

How does this effect community elections?

All Board Members are required to register with FinCEN. And they only have 30 days after an election to register. I believe that anyone running for a Board position needs to provide this information before the election. That way, the registration can be updated immediately after the election.

The other alternative is to wait for someone to be elected and then ask them for their information after the election. This is dangerous. If the new Board Member does not want to give the information, or is just slow to provide it, the Association could face fines of $500 per day.

If a Board Member refuses to comply with the CTA, the rest of the Board may consider removing him or her. But Association Bylaws – as amended to comply with Act 115 – say that a Board Member can only be removed by a vote of all Unit Owners at a special meeting. It is difficult to remove a Board Member. So, if an Association does not get this information ahead of time, it could be “held hostage” by a Board Member who refuses to provide information after the election. It is best to require the personal information from all candidates.

This might require an amendment to the Bylaws. Section 3306(a)(3) of the Uniform Condominium Act (and 5306(a)(3) of the Uniform Planned Communities Act) says that the Bylaws must contain qualifications for Board Members. Some Bylaws require Board Members to be residents of the Community. If a qualification for being a Board Member is filling out a FinCEN registration, it arguably has to be listed in the Bylaws.

At the end of the day, the CTA is fairly simple. Board Members need to provide their name, birthdate, address and driver’s license to FinCEN. That registration needs to be updated every time the Board changes. Complying with the CTA is a matter of providing the initial filing and then being diligent with updates after elections. Even though community associations would rather not be subject to this requirement, it is here. We can help Boards comply with these requirements.