New Law. A new federal law, the Corporate Transparency Act (the “CTA”), became effective January 1, 2024. Here is a summary of what this new law requires.
Executive Summary. The CTA requires every company that is not exempt to file a beneficial ownership report (a “BOI Report”) with FinCEN – the Financial Crimes Enforcement Network of the U.S. Treasury. The CTA’s goal is to enhance transparency and to combat financial crimes such as money laundering and terrorism financing within the United States by creating create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity.
Who Must Report? So-called “reporting companies” must file the BOI Report, which includes corporations, limited liability companies (LLCs), and others registered with the Indiana Secretary of State or similar office in another state. Both domestic and foreign companies registered to do business in the United States must report. Most privately-owned corporations and LLCs must file the BOI Report with FinCEN.
What Businesses Are Exempt? There are 23 classes of entities that are exempt from the reporting requirement. The exemption categories cover several classes of entity that are the subject of extensive regulation or that are otherwise required by law to disclose their ownership information to the government. The list includes publicly owned companies, tax-exempt organizations, banks, credit unions, and insurance companies.
Additionally, sole proprietorships, trusts, and general partnerships are not required to file formal documents with the Secretary of State, so these generally are not considered reporting companies and are not required to file a BOI Report, unless they elect to file with the Secretary of State.
Who is a Beneficial Owner? Beneficial owners are individuals who: (1) directly or indirectly, through any contract, arrangement, understanding, or relationship, exercise substantial control over or own 25% or more of the equity interests in the company, or (2) any individual who exercises substantial control over the reporting company’s business or finances, such as a President, Vice President, Secretary, Treasurer, or in larger companies the CEO, CFO, COO, or other officer that performs similar functions. Importantly, it is not required that these individuals have actual ownership in the company to be considered a beneficial owner for reporting purposes.
What Must be Reported About the Reporting Company? The following details about the reporting company must be reported: (1) full legal name, (2) any trade name or “doing business as” name, (3) a complete current address, (4) the state or jurisdictions of the reporting company’s formation, and (5) the reporting company’s tax identification number.
What Must be Reported About the Beneficial Owner? The following details about each beneficial owner must be reported: (1) full legal name, (2) date of birth, (3) current residential street address, (4) unique identifying number from an acceptable identification document (i.e., a non-expired U.S. passport, state driver’s license, or other government-issued ID card), and (5) an image file of the document that provides the unique identifying number. (Note: For reporting companies formed or registered on or after January 1, 2024, the initial BOI Report must also include these same five pieces of information for the reporting company’s “company applicant,” which is generally the individual(s) (no more than two) who directly file the document that creates the domestic reporting company.)
What are the Filing Deadlines? The initial filing deadline depends on when the company was created.
- Initial Filing: (1) Reporting companies created or registered before 2024 must file the initial BOI Report no later than January 1, 2025, (2) Reporting companies created or registered in 2024 must file the initial BOI Report within 90 days after the entity’s creation or registration, and (3) Reporting companies created or registered in 2025 and after must file the initial BOI Report within 30 days after the entity’s creation or registration.
- Ongoing Updates: If there is a change to previously reported information about the reporting company or its beneficial owners, an updated BOI report must be filed within 30 days of the change. It is imperative that your company implements a system to identify reportable changes and file an updated BOI report with FinCEN in a timely manner.
How is the BOI Report Filed? BOI Reports are filed electronically. FinCEN’s e-filing portal, available at https://boiefiling.fincen.gov, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI Report.
What are the Penalties for Non-Compliance? The CTA contains serious penalties for noncompliance. A reporting company that fails to file a BOI Report (or a required amendment) when due is subject to a $500 per day fine up to a maximum of $10,000. A willful failure to file a report when due or an intentional filing of inaccurate information is punishable as a felony by up to two years imprisonment. A willful violation in combination with other anti-money laundering violations can result in an amplified penalty of up to 10 years imprisonment.
Who can Access Information in the BOI Report? Information collected under the CTA is intended to be kept confidential and the BOI Report is not publicly accessible. Authorized disclosures are limited to authorized governmental authorities and, in some cases, financial institutions with appropriate permissions.
Are There Resources Available for More Information? FinCEN has created a Small Entity Compliance Guide as well as frequently asked questions to help guide businesses through these new CTA reporting requirements. These tools are currently available at https://www.fincen.gov/boi/small-business-resources.
What Action is Required Now? Your company should file the Initial BOI Report with FinCEN as soon as possible. Because the system is confidential, there is no search feature to verify that your business entity has filed or is compliant with the filing requirement. As a result, when you file the initial BOI Report, please keep a copy of the initial BOI Report as well as a downloaded transcript of the successful filing that is generated after filing the report. If you would like assistance with the preparation and filing of your initial BOI Report or have any questions regarding the CTA, please do not hesitate to contact us.