The Corporate Transparency Act (CTA) went into effect on January 1, 2024, and will impact millions of U.S. businesses by imposing requirements to file corporate transparency reports with beneficial ownership information (“BOI”) before January 1, 2025. Here, we summarize some key points and remind business owners to comply with these new requirements as soon as possible to avoid civil or criminal penalties.
What is the Corporate Transparency Act?
The Corporate Transparency Act (“the Act”) implements reporting requirements for non‑exempt businesses to the Financial Crimes Enforcement Network (“FinCEN”). Specifically, the Act lays out who must report, what must be reported, how to report, and penalties for failing to report or fraudulently reporting. The goals of the Act are to (1) set clear standards for incorporation practices, (2) protect national security interests, (3) protect commerce, (4) improve efforts to counter financial crimes, and (5) allow for United States compliance with international standards that oppose financial crimes. As a result of the changes implemented by this new law, it is important for businesses to understand how they are impacted.
Does it apply to you?
The Act requires companies to report if the company is a corporation, LLC, or similar entity that was created by filing a document with a Secretary of State or similar office. Additionally, corporations, LLCs, and similar entities formed in a foreign country and registered to do business in the U.S. are also required to report. However, if the business falls within one of 23 categories listed in the Act, the business will be considered exempt. The exemptions include the following types of companies: securities reporting issuers, governmental authorities, banks, credit unions, depository institution holding companies, money services businesses, brokers or dealers in securities, securities exchanges or clearing agencies, other Exchange Act registered entities, investment companies or advisers, venture capital fund advisers, insurance companies, state-licensed insurance producers, Commodity Exchange Act registered entities, accounting firms, public utilities, financial market utilities, pooled investment vehicles, tax-exempt entities, entities assisting a tax-exempt entity, large operating companies, subsidiaries of certain exempt entities, and inactive entities.
For more information regarding whether your business must file a report, please refer to: https://fincen.gov/boi-faqs.
What information do you need to comply?
Initial Reports
The information that each company is required to report depends on whether it was formed before January 1, 2024 (“existing entity”) or on or after January 1, 2024. For existing entities, the reporting company must submit a report containing information about the company and its beneficial owners. For companies formed on or after January 1, 2024, the reporting company must report information about the company, its beneficial owners, and the company applicant.
Beneficial owners are individuals who, directly or indirectly, exercise substantial control over the company or own or control at least 25% of the ownership interests. An individual is considered to exercise substantial control if they are a senior officer, have authority to appoint or remove officers or directors, are an important decision-maker, or have any other form of substantial control. Ownership interests can include shares of equity, stock, voting rights, and other mechanisms. Company applicants are individuals who file the document to form or register a corporation, LLC, or similar entity.
Regarding the reporting company, the report must include the legal name, any trade names (including “doing business as” or “trading as” names), the current street address of the principal place of business, the jurisdiction of formation or registration, and the taxpayer identification number. For information regarding the beneficial owners, the report must include the individual’s name, date of birth, residential address, an identifying number from an acceptable identification document, and an image of the identification document. For entities that are required to report the company applicant, the required information includes the applicant’s name, date of birth, address, an identifying number from an acceptable identification document, and an image of the identification document. Examples of acceptable identification documents include passports and driver’s licenses.
Updated Reports
The reporting requirement is not annual, but, after filing an initial report, the report must be updated or corrected as needed. If there are changes to the information provided in a company’s initial report about the reporting company or the beneficial owners, the company is required to submit an updated report reflecting the change in information. This update must be filed within 30 days of when the change occurred. An updated report is not required for changes to the company applicant. Additionally, if there are any inaccuracies (including those about the reporting company, beneficial owners, or company applicant) in the initial report, the company has 30 days after becoming aware of the inaccuracy or having reason to know of the inaccuracy to file a corrected report.
How do you comply?
To comply with the Act, reporting companies must submit the report electronically through a form to FinCEN via a secure filing system. There is no fee to submit the BOI, and the report may be filed by anyone authorized by the reporting company to act on its behalf.
The form can be accessed by selecting “File BOIR” at: https://boiefiling.fincen.gov
The electronic filing system can be accessed at: https://boiefiling.fincen.gov
When is the deadline to file a report?
Deadline for Existing Entities
If your company was formed before January 1, 2024, the deadline to file your report is January 1, 2025.
Deadline for New Entities
If your company was formed on or after January 1, 2024 and before January 1, 2025, the deadline to file your report is 90 days after receiving notice of your company’s creation or registration.
If your company was formed on or after January 1, 2025, the deadline to file your report is 30 days after receiving notice of your company’s creation or registration. Notice occurs on the earlier date of either actual notice of formation or registration or public notice from the Secretary of State.
What are the penalties for failing to comply?
Companies that willfully fail to file reports, file fraudulent reports, or willfully fail to file updated reports may be subject to both civil and criminal penalties. Anyone who willfully violates the reporting obligations is liable for up to $591 per day (adjusted for inflation). Additionally, the individual may also be fined up to $10,000 and/or imprisoned for up to two years. The Act also provides more severe penalties for individuals who knowingly disclose or use the BOI through a report to FinCEN or a disclosure made by FinCEN.
More details on the Corporate Transparency Act may be found at the following websites: https://www.fincen.gov/sites/default/files/shared/Corporate_Transparency_Act.pdf https://fincen.gov/boi-faqs
Given the risks of civil and criminal penalties, it is important for any business owner to consult with a qualified advisor that is well-versed in the Corporate Transparency Act to take appropriate compliance action.
Disclaimers: The information contained in this posting does not, and is not intended to, constitute legal advice or express any opinion to be relied upon legally, for compliance or investment purposes or otherwise. This information is merely for educational purposes and does not create any attorney-client relationship between Rothwell Figg and you or your company or create any duties on Rothwell Figg to advise or assist in compliance with the Corporate Transparency Act. If you would like to obtain legal advice relating to the subject matter addressed in this posting, please consult with your qualified legal counsel. The information in this post is also based upon publicly available information, presents opinions, and does not represent in any way whatsoever the opinions or official positions of the entities or individuals referenced herein.