Corporate Transparency Act

Jan 2024 | Business

The Corporate Transparency Act (CTA) took effect January 1, 2024. Most small businesses are now required to report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the United States Department of Treasury.  The CTA was enacted to fight illegal use of business entities since most states don’t require reporting of ownership information of those entities.

Who needs to report?

Most small businesses that were formed by filing a formation document with the Secretary of State (LLCs, Corporations and other entities), as well as foreign businesses qualified in the United States. There are 23 types of entities that are exempt from the reporting requirements.

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Most of the exemptions are for heavily regulated businesses.  Most small businesses will not qualify for the large operating company exemption because to qualify they must have more than 20 full time (at least 30 hours/week) employees in the United States,  have a physical office in the United States, and must have filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.

When to report?

For all companies existing on December 31, 2023, that are not exempt from reporting requirements, reporting should be completed by January 1, 2025.

If your company is created on or after January 1, 2024 and before January 1, 2025, your company will have 90 calendar days from creation to file the initial Beneficial Ownership Information report (starting when the company receives actual notice that their company registration or creation is effective). Companies that are registered or created on or after January 1, 2025 will have 30 calendar days from actual notice of the company’s creation or registration with the Secretary of State to file their initial Beneficial Ownership Information (BOI) reports with FinCEN.

What needs to be reported?

A reporting company will have to report:

  • Its legal name;
  • Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
  • 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);
  • Its jurisdiction of formation or registration; and
  • 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).

For each individual who is a beneficial owner, a reporting company will have to provide:

  • The individual’s name;
  • Date of birth;
  • Residential address; and
  • 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 identification document (for examples of acceptable identification, see Question F.5).

The reporting company will also have to report an image of the identification document used to obtain the identifying number.

Who is a Beneficial Owner?

A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.

An individual can exercise substantial control over a reporting company if the individual falls into any of the four categories below:

  • The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
  • The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
  • The individual is an important decision-maker for the reporting company. Important decisions include decisions about a reporting company’s business, finances, and structure.
  • The individual has any other form of substantial control over the reporting company as explained further in FinCEN’s Small Entity Compliance Guide

How to report?

BOI must be filed electronically through the FinCEN website.

Anyone who is authorized by the reporting company to act on the company’s behalf (i.e. employee, owner, attorney) may file the BOI report.

Be careful regarding scams!

From the FinCEN website: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled "Important Compliance Notice" and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.

Who can access the BOI?

FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.

What if a company doesn’t register?

A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues, and be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

Need more information?

For more information on the CTA and BOI reporting requirements see the FAQ or the Small Entity Compliance Guide. 

You can also contact the attorneys in the Business Department of Curran Law Firm at 253-852-2345.