The Corporate Transparency Act (CTA)
The Corporate Transparency Act (CTA) went into effect on January 1, 2024, requiring companies to report certain information about the company and its Beneficial Owners (defined below) through the BOI E-Filing System. The CTA was enacted for the purpose of increasing transparency in corporate structure to reduce illegal acts such as money laundering and tax fraud. Below, we’ve included summary information on the CTA requirements and related resources in order to assist in your future compliance of the CTA. We strongly encourage you to review the resources linked here and seek out additional guidance if necessary to ensure compliance.
Reporting Companies
The following companies are required to report under the CTA (“reporting companies”):
- Domestic Reporting Companies include corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States. This may include trusts, depending on the applicable state law.
- Foreign Reporting Companies include entities (including corporations and LLCs) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
Exceptions to Reporting
There are 23 exemptions to the reporting requirements, which include certain publicly traded companies, many nonprofit organizations and certain large operating companies. The FinCEN Small Entity Compliance Guide (linked here) includes additional information about exemptions in Chapter 1.2.
Who is a Beneficial Owner?
A “Beneficial Owner” in a company is an individual who (i) directly or indirectly exercises substantial control over the company or (ii) owns and controls at least 25% ownership interests of the company. This does not include minor children (parent/guardian must be reported instead), individuals acting on behalf of another individual, employees who exercise control due solely to their employment status, individuals whose interests are based on the right of inheritance, or creditors of the company (unless otherwise meeting the requirements of being a Beneficial Owner).
Substantial Control can be found if an individual (i) is a senior officer of the company; (ii) has authority to appoint or remove officers or a majority of directors (or similar body) of the company; (iii) is an important decision maker about the company’s business, finances and/or structure; or (iv) has any other form of substantial control.
What Information Needs to be Reported?
A reporting company will have to provide the following information about the reporting company:
- Legal name;
- Any trade names, “doing business as” or “trading as” names;
- Current street address of its principal place of business in the United States;
- Jurisdiction of formation; and
- Taxpayer Identification Number.
A reporting company will have to provide the following information about its beneficial owners:
- Individual’s name;
- Date of birth;
- Residential Address;
- Identifying number from a government issued ID and the issuing jurisdiction; and
- An image of such government issued ID.
Additionally, reporting companies formed after January 1, 2024, will have to provide the same information listed above for beneficial owners for the individual(s) responsible for filing the company’s registration documents (“company applicants”). There may be two company applicants: (1) the person actually filing and (2) the person causing the documents to be filed.
FinCEN Identifier
Companies and Beneficial Owners may register for a FinCEN identifier to use in fulfilling reporting requirements instead of providing the above information. There is an online form for individuals to register on the FinCEN website (linked here). A Company may elect to receive a FinCEN identifier while completing the Beneficial Owner report.
Deadlines for Compliance
The reporting requirement began on January 1, 2024. Existing companies have until January 1, 2025, to register. Companies formed in calendar year 2024 will have 90 days from formation to file. Companies formed after January 1, 2025, will have 30 days from formation to file. All changes or corrections to company or beneficial owner information must be updated within 30 days of the change or discovery.
Penalties for Non-Compliance
Failing to report or maintain updated beneficial ownership information (BOI), or providing fraudulent BOI may result in civil and criminal penalties, including civil penalties of $500 per day that the violation persists and criminal penalties of imprisonment for up to two years and/or a fine of $10,000. Officers of an entity may be held responsible. In addition, Beneficial Owners may be subject to civil and criminal penalties for refusing to provide the information required to file a BOI.
The CTA has included a safe harbor for non-compliance if a company voluntarily files or corrects a filing within 90 days of the original deadline.
- PLEASE NOTE: On March 1, 2024, a federal judge in the northern district of Alabama ruled that the CTA is unconstitutional. The decision does not suspend reporting requirements outside of the plaintiffs. For entities created in 2024, we recommend making a timely filing within the 90-day period.
For reporting companies created before January 1, 2024, we recommend delaying filing until mid-year until more decisions are made.
Resources
We have compiled a few resources that may be helpful in understanding and complying with the new CTA. This list is by no means exhaustive, and we encourage you to perform additional research or seek professional advice if necessary.