Background and context
The Corporate Transparency Act (CTA), signed into law on January 1, 2021, is a response to growing concerns over the use of anonymous shell companies for illegal purposes. The CTA mandates that certain entities must report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
What are the Beneficial Ownership reporting requirement?
One of the central provisions of the CTA is the requirement that entities disclose their beneficial owners and make updates within 30 calendar days of any changes to the Beneficial Owners. Beneficial Owners are individuals who, directly or indirectly, exercise substantial control over or receive substantial economic benefits from a legal entity. This includes individuals who own 25% or more of an entity's ownership interests or have significant managerial control.
Is my company considered a reporting entity?
Determining whether a Beneficial Ownership Information (BOI) report must be filed involves a two-step process. First, determine if the entity is a corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office, or formed under the laws of a foreign country and registered to do business within the United States. Second, determine if the entity is exempt from having to file a report (a list of exemptions can be found on pages 3 and 4 of this document).
When do I need to file?
Reporting entities created or registered before January 1, 2024, must file by January 1, 2025, through FinCEN. Entities created or registered on or after January 1, 2024, must file within 90 calendar days of receiving notice from the Secretary of State that its creation is effective. Additional reporting is necessary any time the Beneficial Owners changes, and must be done within 30 days.
What information do I need to file?
The information to be reported varies based upon the date the entity was established. Entities registered or established after January 1, 2024, must provide information regarding the entity, its Beneficial Owners, and its entity applicants — including owners' and applicants' (if applicable) names, addresses, birthdays, and identification numbers (such as a driver's license number or passport number). Businesses established before that date need not provide information regarding entity applicants.
An entity applicant is: (a) the person who directly files the document that creates or registers the reporting company, and (b) if more than one person is involved with the filing of the document, the person who is primarily responsible for directing or controlling the filing. All reporting entities must provide their legal name and trademarks, as well as their primary U.S. business address. They will also need to provide a Taxpayer Identification Number (TIN) and specify the jurisdiction where they were formed or registered.
In addition to the required initial filing, additional filings will be necessary when there has been a change to the Beneficial Owner, including a new Beneficial Owner or a change to the current Beneficial Owner's address or identification numbers.
What are the consequences if I do not file?
Wilfully failing to report Beneficial Owners within 90 days of formation or registration for reporting companies created or registered in 2024 or within 30 days of formation or registration for reporting entities created or registered thereafter, or wilfully providing false or fraudulent Beneficial Owners, may result in consequences, including a maximum civil penalty of $500 per day (up to $10,000) and/or imprisonment of up to two years.
Is the information provided in the report confidential?
The information reported to FinCEN through these reports can only be disclosed by FinCEN to a government agency, law enforcement, or financial institutions for compliance with anti-money laundering or other diligence obligations. Freedom of Information Act requests do not cover the CTA reports, which means the reports will not be available to the public.
Beware!
FinCEN has issued an alert about fraudulent attempts to solicit information from individuals or entities subject to the CTA.
The CTA scam uses fraudulent correspondence that may be titled "Important Compliance Notice" or something similar and asks the recipient to click a link or scan a QR code. Do not click, scan, or respond to e-mails or letters attempting to solicit CTA information. Note that FinCEN does not send unsolicited communications requesting CTA information from individuals and entities. FinCen does not send unsolicited requests.
Helpful Links
Where do I file?
Financial Crimes Enforcement Network (FinCEN) – Beneficial Ownership Information Portal.
What does the law say?
Here is a link to the Corporate Transparency Act
https://www.fincen.gov/sites/default/files/shared/Corporate_Transparency_Act.pdf
What if I am a small entity?
Please see FinCEN's Small Entity Compliance Guide.
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.