Corporate Transparency Act: Key Issues and Compliance
Is your business ready?
On January 1, 2021, Congress passed the Corporate Transparency Act (“CTA”). The CTA requires all business entities, subject to certain exceptions, to disclose information about the entity and the individual(s) who own such entity and/or have substantial control as further defined below (i.e. “Beneficial Owners”)[1]. The CTA was created to help the United States government combat money laundering, tax fraud and illegal foreign ownership of U.S. businesses. On September 30, 2022, the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a Final Rule on the CTA, explaining what information needs to be disclosed in the form of a Beneficial Ownership Information Report (referred to as a “BOI Report”).
What You Need to Know
Beginning January 1, 2024, businesses in the U.S. will have the responsibility of reporting specific information about the business, including its beneficial owners, to FinCEN. Business entities that need to comply with the CTA are each referred to as a Reporting Company (“Reporting Company”). A Reporting Company includes all corporations, LLCs, and similar entities that have filed formation documents with a Secretary of State or similar office under the law of a State or Indian tribe within the U.S., or foreign entities that are formed under foreign laws but are registered to do business in the U.S. unless it qualifies for an exemption[2]. A Reporting Company must submit to FinCEN a BOI Report for each Reporting Company’s “Beneficial Owner(s)” and in some circumstances, its “Company Applicant(s)”[3]. If a Reporting Company fails to file a BOI Report or disregards its beneficial ownership information reporting obligations civil and criminal penalties ($500 per day up to $10,000 per violation and imprisonment up to two years) may be imposed by FinCEN so timely compliance, even by the smallest of businesses, including sole proprietorships, is of the utmost importance!
Deadlines
- Existing Businesses- Any Reporting Company formed before January 1, 2024, will have until January 1, 2025 to file its initial BOI Report.
- New Businesses- Any Reporting Company that is formed in 2024, will have 90 calendar days after receiving a notice of an effective creation or registration of its Reporting Company to file its initial BOI Report[4].
- Changes/Updates/Corrections- Any updates to a BOI Report must be reported to FinCEN within 30 days after the date on which the change occurred or when the Reporting Company became aware of an inaccuracy in its BOI Report.
Definitions
A Beneficial Owner is an individual who either, directly or indirectly, exercises substantial control over the Reporting Company or owns at least 25% of the Reporting Company. Some examples of individuals who exercise substantial control are senior officers of a Reporting Company like the CEO, CFO and General Counsel.
A Company Applicant is the individual who, respective to an entity created or registered on or after January 1, 2024, files the formation documents for the Reporting Company and/or is primarily responsible for directing or controlling the information provided in the formation documents (“Company Applicant”). There can only be up to two (2) Company Applicants for each Reporting Company.
How and What to Report
Reporting Companies will have to submit its BOI Report electronically through FinCEN’s beneficial ownership secure system (BOSS), when active after January 1, 2024, and can be found here: Beneficial Ownership Information Reporting | FinCEN.gov.
Each Reporting Company must provide:
- Full legal name;
- All alternate names (including trade names, fictitious names, DBAs, etc.);
- Tax identification number;
- Jurisdiction of formation or registration (domestic or foreign); and
- Current U.S. address (i.e. principal place of business must be street address).
Each Company Applicant must provide:
- Full legal name and date of birth;
- Current address (residential address or if the Company Applicant works in corporate formation, then the business address of the Company Applicant must be reported);
- Identification number of a non-expired identifying document (passport, driver’s license or government-issued ID); and
- Front and back image of the identifying document; or
- Company Applicant(s) may provide a FinCEN Identifier in lieu of the information above.
Each Beneficial Owner must provide:
- Full legal name and date of birth;
- Current residential address;
- Identification number of a non-expired identifying document (passport, driver’s license or government-issued ID); and
- Front and back image of the identifying document.
Conclusion
The CTA has created new reporting obligations for most small and large businesses. If you have any questions or would like assistance in complying with the CTA requirements, please reach out to Peter P. Lindley, P.A. or email us at [email protected]. The firm would be glad to provide additional guidance and help your business comply with the CTA.
For More Information
The Small Entity Compliance Guide can be found HERE – https://www.fincen.gov/boi/small-entity-compliance-guide.
The Beneficial Ownership Information FAQ’s can be found HERE – https://www.fincen.gov/boi-faqs.
The full text of the CTA can be found HERE. https://www.govinfo.gov/content/pkg/USCODE-2020-title31/pdf/USCODE-2020-title31-subtitleIV-chap53-subchapII-sec5336.pdf
The full text of the Final Rule by FinCEN can be found HERE.
[1] FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. FinCEN has noted that those e-mails or letters are fraudulent as FinCEN advises that it does not send unsolicited requests. As such, you should independently verify any such requests and not click any links or scan QR codes within them. You may contact the Treasury’s Office of Inspector General at https://www.treasury.gov/about/organizational-structure/ig/Pages/OigOnlineHotlineForm.aspx.
[2] The Beneficial Ownership Information Reporting Rule exempts twenty-three (23) specific types of entities from the reporting requirements listed in Chart 2 of Section 1.2 of the Beneficial Ownership Compliance Guide (the “Reporting Rule”). An entity that qualifies for any of these exemptions is not required to submit BOI reports to FinCEN. https://www.fincen.gov/boi/small-entity-compliance-guide
[3] A Reporting Company is required to report its company applicants if it is either a domestic reporting company created on or after 1/1/2024 or a foreign reporting company first registered to do business in the U.S. on or after 1/1/2024. See, generally, Section 3.1 of the Reporting Rule, hyperlink at [2] above.
[4] A Reporting Company is required to file its BOI Report: (i) if existing as of 1/1/2024, by not later than 1/1/2025; and (ii) if created on or after 1/1/2024 but before 1/1/2025, then within 90 calendar days of receiving actual or public notice that the company’s creation or registration is effective. See, generally, Section 5.1 of the Reporting Rule, hyperlink at [2] above.