Corporate Transparency Act Support

The new corporate transparency reporting rules went into effect on January 1, 2024. The Corporate Transparency Act requires many small businesses to provide new details about beneficial owners who control the company.

Under the Corporate Transparency Act (CTA), enacted in 2021, certain companies will be required to provide information related to their “beneficial owners” — the individuals who ultimately own or control the company — to the Financial Crimes Enforcement Network (FinCEN). Failure to do so may result in civil or criminal penalties, or both.

It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.

Understanding the CTA

A business that’s characterized as a “reporting company” has either 30 days or one year to comply with the new rules or in some cases 90 days.

The CTA’s rules generally apply to both domestic and foreign privately held reporting companies. For these purposes, a reporting company includes any corporation, limited liability company or other legal entity created through documents filed with the appropriate state authorities, including single member LLCs if registered with the state. A foreign entity includes any private entity formed in a foreign country that’s properly registered to do business in the United States.
The list of entities exempt from reporting is too lengthy to include. As an example, an exemption exists for large operating companies that employ more than 20 employees in the U.S. on a full-time basis, has more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources), and physically operates in the United States.

Determining a Beneficial Owner

Under the CTA, a nonexempt entity must provide identifying information about its beneficial owners. A beneficial owner is someone who, directly or indirectly, exercises substantial control over a reporting company, or owns or controls at least 25% of its ownership interests. An individual has substantial control of a reporting company if he or she:

• Is a senior officer of the company,
• Has authority over the senior officers or a majority of the company’s board,
• Has substantial influence over the company’s important decisions, or
• Has any other type of substantial control over the company.

This generally includes individuals who are directly related to ownership interests in the company, but indirect control may also result in classification as a beneficial owner.

The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.

Defining Company Applicants

The CTA also requires reporting companies to provide identifying information about their company applicants. A company applicant is someone who is:

• Responsible for filing the documents that created the entity (for a foreign entity, this is the person who directly files the document that first registers the foreign reporting company to conduct business in a state), or
• Primarily responsible for directing or controlling filing of the relevant formation or registration document by another individual.

This rule includes legal personnel acting in a business capacity.

When to file?

• New entities (created/registered in 2024) — must file within 90 days
• New entities (created/registered after 12/31/2024) — must file within 30 days
• Existing entities (created/registered before 1/1/24) — must file by 1/1/25
• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days.

Other CTA Reporting Requirements

The CTA’s reporting requirements are extensive. Specifically, the report to FinCEN must include the following information:

• The legal name of the entity (or any trade or doing-business-as name),
• The address of the entity,
• The jurisdiction where the entity was formed,
• The entity’s Taxpayer Identification Number, and
• The name, address, date of birth, unique identifying number information of each beneficial owner (such as a U.S. passport or state driver’s license number), and an image of the document that contains the identifying number.

Note that reports filed with FinCEN aren’t available to the general public. However, certain government agencies will have access to the information, including those involved in national security, intelligence and law enforcement, as well as the IRS and U.S. Treasury Department.

Penalties

An omission or fraudulent report could result in civil fines of $500 a day for as long as the report is missing or remains inaccurate. Failure to comply may also trigger a criminal penalty of a $10,000 fine or even a two-year jail term.