The Corporate Transparency Act (CTA) affects HOAs by requiring them to report detailed information about their board membership and financial stakeholders. Board members and anyone holding a beneficial ownership of 25% or more of a corporation are required to report their personal information to the Financial Crimes Enforcement Network (FinCEN).
The CTA is a federal law that took effect in 2024 alongside the California legislature’s Davis-Stirling Act. Both have significant implications for HOAs, but the Davis-Stirling Act primarily deals with California homeowner association elections. It allows HOAs to hold votes electronically, as opposed to the paper mail-in ballots required under the previous law.
Understanding and complying with both acts is essential for HOAs to operate legally. First, it is necessary to understand why the CTA was enacted.
The Corporate Transparency Act was passed in 2021 and took effect in 2024. Its purpose was to provide greater transparency with regards to who owns corporations in an attempt to root out shell corporations and money laundering. This is accomplished by requiring all board members and those with a significant financial interest to submit their details to FinCEN.
The details they must provide includes the following information:
With this information, FinCEN can cross-reference individuals and entities with related ownership. By requiring detailed information on board members and stakeholders, FinCEN attempts to close loopholes that allow bad actors to obfuscate corporate ownership.
Stripping away anonymity also allows law enforcement to more easily track who owns or has an interest in certain corporations that may be under investigation. This will hopefully reduce financial crimes and increase security for the United States.
In regards to HOAs, though they are typically non-profit, they still hold significant sums of money that must be tracked. In the past, non-profit entities have been used as a means to hide illicit funds and therefore have been included in the CTA reporting requirements.
The effects of the CTA on HOAs are rather limited as long as the HOA remains compliant with the law. They simply need to report the required information to FinCEN. Beginning in 2025, new HOAs will have thirty days to file the required information, while all existing HOAs have ninety days from the date the law took effect.
Governorship of HOAs remains largely unaffected by the CTA. The only requirement is that new board members or beneficial owners must submit their information to FinCEN in a timely manner.
The largest effect on HOAs is the penalty for non-compliance. Financial penalties may be severe, even for individuals who are simply ignorant of the law. Furthermore, willfully disregarding the reporting requirements will now be a felony that could lead to even greater fines and jail time.
Because of this, it is of the utmost importance for HOAs to file the necessary forms with FinCEN as soon as possible. They should also seek legal representation to ensure reporting requirements are followed.
Alongside the CTA, the California legislature passed the Davis-Stirling Act, which also took effect in 2024. Unlike the CTA, which required increased reporting, the Davis-Stirling Act sought to make it easier for HOAs to hold votes electronically. This was aimed at bolstering voter awareness and turnout in HOA elections, thus increasing transparency.
When combined with virtual meeting platforms for HOAs in California, like ElectionBuddy, HOAs can now conduct elections more easily and transparently than ever before. These changes also help to increase voter trust in the democratic process of HOA elections. Members who wish to receive paper ballots can still do so, as ElectionBuddy offers both services simultaneously.
The Davis-Stirling Act also required that HOAs wishing to use e-voting have independent oversight via a designated inspector of elections. Fortunately, ElectionBuddy also employs such inspectors. These independent third parties ensure that votes cannot be tampered with during the voting period and aren’t opened until the voting is finished.
ElectionBuddy provides independent election experts to help organizations and HOAs remain compliant with all relevant laws and regulation surrounding elections. This helps to ensure HOAs do not run afoul of the law and continue to operate legally.
By adhering to both laws, HOAs will be more effective and transparent while rooting out bad actors and protecting HOA members’ anonymity in the democratic process!
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