The Corporate Transparency Act (CTA), enacted in 2021 to curb illicit finance, requires many companies doing business in the United States to report information about the individuals who ultimately own or control them. The purpose of the Act is to prevent “bad actors” from hiding behind “shell companies” for illegal business activities such as money laundering. Beginning January 1, 2024 US companies will be required to report Beneficial Owner Information (BOI) for persons who own and/or control companies to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury.
There are several items a business needs to consider when dealing with this ACT.
Determine Your Reporting Company Status
Determine if your business is considered a “reporting company” that needs to report under the CTA. This typically includes corporations, LLCs, and other similar entities doing business in the U.S. However, Sole Proprietors are generally not required to report.
There are 23 exemptions under the Act. Determine if your company qualifies for an exemption. For example, if your company is a publicly-traded entity or financial institution, it is generally exempt because it already undergoes rigorous public disclosure requirements. Check the website for the full list of exemptions. If you are relying on an exemption, seek a legal opinion to confirm that you are exempt.
Penalties for Not Reporting
If you don't report as required, your company could face civil penalties up to $500 for each day of noncompliance after a missed deadline, as well as criminal fines and possible imprisonment for willful non-compliance.
Identifying beneficial Owners
A beneficial owner is anyone with at least 25% ownership interest or who exercises substantial control over the company. "Substantial control" can include high-level operational control, like a CEO or other executive who makes significant decisions for the company, even if they don't own a significant portion of the company. This also includes board members, shareholders, and senior executives who have significant control over operations of the entity.
Report Company Applicants
For companies formed after January 1, 2024, you will need to report individuals who are significantly responsible for filing the documents that create or register the company. For example, if a lawyer or an agent files the formation documents, they could be considered a company applicant. Don’t forget to include your registered agent. This rule does not apply to companies formed prior to January 1, 2024. Simply state that the company was formed prior to 2024.
The information you'll need to collect and submit includes full legal names, dates of birth, current addresses, and a unique identification number for each beneficial owner or company applicant such as a Social Security number or FEIN, passport number, or state issued driver's license number for a person and an FEID for a company. A photocopy of the document must accompany the filing.
Submit your initial BOI report according to the timelines based on when your company was created or registered. For businesses formed after January 1, 2024, you have 90 days from the date of formation to report. After 2024, you have 30 days from the date of formation to file your report. For businesses formed before January 1, 2024, you have until January 1, 2025 to report.
Update FinCEN with any changes to the reported information or correct any inaccuracies as soon as possible, but always within 30 days of the change. Changes include adding a new DBA, change in beneficial owners, death of a beneficial owner, change of beneficial owner name, marital status, address or unique identifying number. There is no annual renewal requirement, only that information is kept up-to-date. Reported information is protected from public search or access. When in doubt, REPORT.
The application process can be completed online, and there is no charge to file. Go to https://www.fincen.gov/boi for a complete guide to complying with the Act.
Penalties for non-compliance can be severe. Better to be safe, than sorry.