The Corporate Transparency Act (CTA) of 2021 requires each business that qualifies as a reporting company to file a report, called a BOI Report, with the Department of Treasury’s Financial Crimes Network (FinCEN), identifying information about each beneficial owner and each company applicant of such entity. The CTA was enacted to increase the transparency of private company ownership and to help prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity.
Which Companies Have to Report?
Any business will be deemed a reporting company subject to the reporting obligations under the CTA if they are either: (1) a domestic reporting company, which is a corporation, limited liability company (LLC), or other entity that is created or formed by the filing of a document with a secretary of state or any similar state or tribal regulatory office; or (2) a foreign reporting company, which is a corporation, limited liability company (LLC), or other entity that is created or formed under the laws of a foreign country and is registered or qualified to do business in the United States by the filing of a document with a secretary of state or any similar state or tribal regulatory office.
What Information Needs to Be Included?
If you are a reporting company, you must provide the company’s: (1) legal name and any fictitious names; (2) principal business address; (3) jurisdiction of formation or registration; and (4) unique identification number, such as a Taxpayer Identification Number, Employer Identification Number, or Legal Entity Identifier.
A beneficial owner must also provide information under the CTA. A beneficial owner is any individual who, directly or indirectly through one or more entities, either: (a) exercises substantial control over such company; or (b) owns or controls 25 percent or more of the ownership interests of such company.
Substantial control is determined if the beneficial owner (1) serves as a senior officer of the reporting company; (2) has authority over the appointment or removal of any senior officer, or a majority or dominant minority of the managing board; (3) controls the direction, determination, or decision of, or otherwise has substantial influence over any material matter affecting the business or operation of the reporting company; or (4) otherwise has authority to exercise any other form of substantial control over the reporting company.
However, a beneficial owner may never be (1) a minor child, but the reporting company’s BOI Report must include the child’s parent or legal guardian information; (2) act as a nominee, intermediary, custodian, or agent on behalf of another individual; (3) an employee of the reporting company who is acting solely as an employee and whose substantial control or economic benefits from the reporting company are derived solely from their status as an employee; (4) an individual whose only interest in the reporting company is a further interest through a right of inheritance; or (5) a creditor of the reporting company.
The beneficial owner must provide information such as: (1) full legal name; (2) date of birth; (3) current residential street address, and, for company applicants, their current business address; and (4) unique identifying number, for example their social security number or FinCEN identifier, together with a scanned copy of the identification document evidencing such number.
What Are Some Recent Changes that Need to Be Considered?
Starting 2024, all companies will be required to report information on ownership, beneficial owners, and addresses, to FinCEN. That means every company will have to file a report with FinCEN. The advantage is that the database with this information will not be public; it will be confidential, giving extra privacy rights to both companies and its owners. However, FinCEN will have authority to share the information with governmental agencies and financial institutions.
How Do I File a BOI Report?
Each reporting company must, before January 1, 2024, file its initial BOI Report prior to January 1, 2025. Or on or after January 1, 2024, each reporting company will need to file its initial BOI Report within 30 calendar days of the earlier of: (a) the date on which it receives actual notice that its creation or formation or registration or qualification has become effective; or (b) the date on which a secretary of state or similar office first provides public notice of such creation, formation, registration, or qualification.
If the reporting company realizes that inaccurate information has been provided, it must file an updated BOI report within 30 calendar days after the date on which such it becomes aware, or otherwise has reason to know, of the inaccuracy.
What Happens if I Fail to Report?
Failure of a reporting company, who is subject to the CTA, to fully comply with the reporting requirements can lead to both civil and criminal penalties. For example, any person who fails to file any required BOI Report or who willfully provides, or attempts to provide, false or misleading information in connection with any BOI Report, including any false or fraudulent identifying photograph or document, will face civil penalties of $500 a day while such violation continues, as well as be fined up to $10,000 or be imprisoned for up to two years, or both.
