The Corporate Transparency Act: Expanded Federal Legislation Introduces New Business Ownership Reporting Standards
Author: Taylor Rouillard
Corporate Compliance Paralegal
Starting January 1, 2024, specific entities will need to adhere to the Corporate Transparency Act (“CTA”), after an almost two-year grace period. Initially enacted in 2021, the CTA aims to counteract the use of shell companies and complex ownership structures that facilitate money laundering, funding of terrorism, harboring illicit funds in the US, and other related illegal activities.
The CTA stands out as the first US legislation mandating most businesses to disclose their beneficial ownership information (“BOI”), despite heavily regulated US businesses and businesses in many other countries already being bound by beneficial ownership reporting rules.
Under the CTA, specific domestic and international businesses will have to submit a report concerning beneficial owners and company applicants to the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) through the online Beneficial Ownership Secured System (“BOSS”).
The key questions entities must ask themselves in order to file a BOI report under the CTA are the following:
1. Do I fall under the definition of a reporting company?
2. Do I meet any of the 23 exemptions to the definition of a reporting company?
3. If I am a reporting company and do not meet an exemption:
- What information needs to be reported to FinCEN?
- When do I have to submit a report?
4. Who are the beneficial owners and are there any additional people who have a substantial interest in my company?
5. Who is my company applicant? (if applicable)
What companies qualify as a “reporting company”?
A domestic reporting company is an entity created by filing a document with any US state, territory, or Indian Tribe. A foreign reporting company is an entity formed under the laws of a foreign country and registered to do business in any US state, territory, or Tribal jurisdiction. If you do not fall under this definition, the CTA does not apply, and the entity does not have to report.
Are there exemptions?
Yes, the CTA provides 23 exemptions from the reporting company definition, which generally apply to already highly regulated businesses.
Please be aware that each exemption has specific requirements that an entity must satisfy to qualify for the exemption. FinCEN’s Small Entity Compliance Guide includes definitions of the exempt entities listed on the included table and a checklist for exemptions. FinCEN’s Guide also includes checklists for the additional exemptions to the reporting requirements.
It is advisable to consult with an attorney if you think you may qualify for an exemption.
When do I need to report?
If your company was created or registered before January 1, 2024, you will have until January 1, 2025, to file. Reporting companies created or registered in 2024 will have 90 days to file their initial BOI. Reporting companies created or registered on or after January 1, 2025, will have only 30 days to file their initial BOI after receiving actual or public notice of their creation or registration becoming effective.
Filing Deadline:
Must file an initial report by January 1, 2025
Filing Deadline:
Must file a an intial report within 90 calendar days of creation/registration
Filing Deadline:
Must file an initial report withing 30 days or creation/registration
Who are beneficial owners and company applicants?
Beneficial owners encompass individuals who, directly or indirectly, have significant influence over the reporting company or possess at least 25% of its ownership interests. Such influence, also known as substantial control, denotes authority over crucial decisions within the reporting company, including senior officers or those empowered to appoint or remove officers or directors, among others.
Company applicants are individuals who directly submit documents or direct the filing of documents to establish or register the reporting company and hold primary responsibility for directing and overseeing the filing.
What BOI do I need to provide?
Entities must include information regarding the reporting company itself and any beneficial owners and/or company applicants.
The necessary details for the reporting company to report include:
- Complete legal name
- Trade name (e.g., d/b/a, fictitious names, or principal business identifiers)
- Present address (street address of the primary business location in the US or the primary operational site in the US)
- Jurisdiction of formation or registration
- IRS-issued taxpayer identification number (or, for foreign entities, a tax ID number from a foreign jurisdiction along with the jurisdiction's name)
The necessary details for the beneficial owners and company applicants to report include:
- Full legal name of the person
- Date of birth
- Current street address (residential or office address for company applicants and the current residential address for beneficial owners)
- Unique identification number and issuing jurisdiction from (i) an unexpired photo ID issued by the US government, state, local government, or tribe (such as a passport or driver’s license), or (ii) an unexpired foreign government-issued passport, including a copy of the applicable government-issued document.
Optionally, instead of furnishing the details concerning beneficial owners or company applicants, the reporting company has the option to supply the person’s FinCEN ID. A FinCEN ID is a unique identifying number issued by FinCEN upon request and by providing the same information required of beneficial owners or company applicants. An individual’s FinCEN ID can then be provided to FinCEN on a BOI report in place of the required information about the individual.
Should the reporting company come into existence or be registered for business in a US state after January 1, 2024, it must also disclose its company applicant. This individual, in the case of a domestic reporting company, directly files the document establishing the company, and in the case of a foreign reporting company, files the document registering the company for US state business.
Do I need to report changes to BOI?
Yes, any changes to BOI must be promptly updated or corrected within 30 days of the change. Even companies that gain exemption post-BOI filing must update. If the business is currently exempt, you do not need to file for exemption in BOI, but it is advisable to preserve records relevant to your exemption. Additionally, if you realize a report is inaccurate or have reason to believe so, correcting it within 30 days is mandatory.
Are the BOI reports public?
No, the disclosed BOI will only be accessible to (a) federal, state, local, and Tribal officials with a court order, as well as foreign officials upon request for activities linked to national security/intelligence; (b) financial institutions in certain situations with the reporting company’s consent; and (c) regulators overseeing those financial institutions.
Are there penalties for noncompliance?
Yes, failure to file or update a report willfully could lead to penalties for reporting companies and senior officers, amounting to $500 per day for continuing violations, capped at $10,000, and/or imprisonment for two years.
Any unauthorized disclosure of BOI carries fines of $500 per day, up to $250,000, and/or imprisonment up to five years. If the unauthorized disclosure involves unlawful activities involving $100,000 in a 12-month span or while violating another US law, fines can escalate to $500,000, and imprisonment can extend up to ten years.
Business Law Group is here to help
The CTA represents a significant change in the obligations of most companies. If you have any questions or would like more information on the issues discussed in this article, our attorneys can assist you with determining how this new rule may impact your business. For more information specific to your business needs, please reach out to your contact at Business Law Group.
Please refer to https://www.fincen.gov/boi/Reference-materials to see the latest rules. Please also see https://www.fincen.gov/boi-faqs and https://www.fincen.gov/boi/small-entity-compliance-guide to answer commonly asked questions and for some helpful tips on how to comply with this new act.
Disclaimer:
These materials are provided for informational purposes only. They do not constitute legal or tax advice and do not create an attorney-client relationship with you. Business Law Group may choose to assist certain clients with filings, but we will not be responsible for filing any BOI report for our clients’ entities. While staff are available to answer questions and attorneys can be available to guide clients through the process, those services are legal advice and will be billed accordingly. Filing the initial BOI report and all updated BOI reports remains the client’s sole responsibility. Contact Taylor Rouillard at Business Law Group for any general questions related to the Corporate Transparency Act or to request an meeting with an attorney using the button below.