Explaining the Corporate Transparency Act

by | Business Law

The Corporate Transparency Act (CTA) went into effect on January 1, 2024, and stands to impact millions of small businesses across the U.S.– including yours!

What Is The CTA?

The CTA, enacted in 2021, is aimed at fighting illicit activities like tax fraud, money laundering, and financing for terrorism. The Act seeks to capture more ownership information for specific U.S. businesses operating in or accessing the country’s market. The CTA was established to prevent individuals with malicious intent from hiding or benefitting from the ownership of their U.S. entities to facilitate illegal activities. The Rule was a sweeping and significant update to the U.S. anti-money laundering laws, estimated to affect over 32 million entities by requiring new reports of Beneficial Owners.

Under the new legislation, all corporations, limited liability companies, limited partnerships, and other entities that were formed with a state’s Secretary of State’s office or formed under the law of a foreign country and registered to do business in the US to file a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are associated with the reporting company. The BOI report is required to promote transparency, promote industry standards, and combat financial fraud.

When Do I Need To File?

  • Beginning January 1, 2024, companies will have a limited time to file their initial BOI reports.
  • For companies established before January 1, 2024, the filing deadline is January 1, 2025.
  • Businesses created between January 1, 2024, and January 1, 2025, will have 90 days from either the actual notice of formation or public announcement, whichever comes first, to file.
  • Businesses established on or after January 1, 2025, will have 30 days from notification or public announcement of their formation to submit their first report to FinCEN.

How Do I File?

Reporting companies will be required to file their reports electronically through FinCEN’s online portal.

FinCEN began accepting reports on January 1, 2024.

Will I Be Charged?

Businesses will not incur a fee from FinCEN for submitting their reports, and electronic forms are available on FinCEN’s website.

Who Is A Beneficial Owner Under The CTA?

An individual qualifies as a beneficial owner if they directly or indirectly have a significant ownership stake in a company. This person either has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company’s shares, or has a similar level of control over the company’s equity.

What Information Must be Reported About A Company’s Beneficial Owners?

The details that reporting companies need to include in the BOI report vary based on the date their business was established. Businesses registered or established post-January 1, 2024, must provide information regarding the business, its beneficial owners, and its company applicants — including owners’ names, addresses, birthdays, and identification numbers (such as a license or passport number), and the jurisdiction of the documents. However, businesses established before that date can omit information regarding company applicants.

All reporting companies must provide their legal name and trademarks, as well as their current U.S. address, which could be either the address of its main business site or, for foreign-based companies, their U.S. operational location. They’ll also need to provide a taxpayer identification number and specify the jurisdiction where they were formed or registered.

What do I File?

You’ll need to collect the following information to properly complete the report.

Information about the Company Itself:

  1. The Company’s legal name
  2. Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names
  3. The current street address of its principal place of business if that address is in the United States (for example, a U.S. reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters)
  4. Its jurisdiction of formation or registration
  5. Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction)

Information about Beneficial Owners of the Company:

  1. The individual’s name
  2. The individual’s Date of birth
  3. The individual’s  Residential Address
  4. 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 the identification document
  5. An image of the identification document used to obtain the identifying number in item 4

Information about Company applicants (The company applicant is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company):

  1. The individual’s name;
  2. The individual’s Date of birth;
  3. The individual’s Address;
  4. 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 the identification document; and
  5. An image of the identification document used to obtain the identifying number in item 4.

Please see the full list of items required for the BOI report here.

Who Is Exempt From Reporting?

There are 23 types of companies that are exempt from the BOI reporting requirements. To see if your company is exempt from the BOI reporting, please see the table summary of the 23 exemptions provided by FinCEN.

One important example of an exempt company is a “Large Operating Company” (Exemption #21). A company may be a Large Operating Company if it employs more than 20 U.S.-based full-time employees and filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.

What If Things Change? Will I Need To Update My Filing?

Yes! Should any of the initial reported information change or a beneficial ownership interest be sold or transferred, the company must report this information to FinCEN within 30 days of the change or face the potential of having penalties imposed.

You may be surprised by some requirements for updated filings. Some examples where an update would be needed include:

  • If a beneficial owner changes their address
  • If a beneficial owner legally changes their name due to marriage or divorce
  • If a beneficial owner obtains a new driver’s license or renews an old one
  • Operational changes or a new delegation of authority within the company.

Where Can Business Owners Get Help with their Beneficial Ownership Information Reports?

Companies may opt to file their own BOI reports or with the assistance of a knowledgeable advisor.

What Happens If I Fail To Report?

Failure to meet the deadline for filing and timely updating any changed information to FinCEN can result in significant fines of up to $500 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000 and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report. 

Where Can I Learn More?

To learn more about BOI reporting and its requirements, please visit the FinCEN website and thoroughly review the Small Business Compliance Guide.

Read additional details:

The Corporate Transparency Act: Short Instructions for EXISTING Businesses

The Corporate Transparency Act: Short Instructions for NEW Businesses

You can also reach out to our qualified and experienced team. We would be happy to discuss BOI reporting for your small business.