The Corporate Transparency Act was enacted in January 2021 and goes into effect on January 1, 2024.  It requires companies to report information regarding the Beneficial Owners, defined below, of their entity to a non-public government database maintained by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).  This sets forth a clear-eyed view of the Corporate Transparency Act and the basics of how it affects your business.

How the Corporate Transparency Act Affects Your Business and What Is It?

The Corporate Transparency Act (“CTA”) is legislation intended to increase corporate transparency in order to combat the misuse of legally formed entities for illegal activities, such as money laundering, tax evasion, and fraud.  This transparency is provided by companies reporting their beneficial ownership information (“BOI”), which is essentially just information about who owns and operates the business.

The CTA itself does not affect the day-to-day operations of your business.  It simply requires more extensive reporting of information about the Beneficial Owners of a company than is usually already required by state or local governments.  However, failure to comply with the CTA's reporting requirements can result in civil and criminal penalties, including $500 per day, up to $10,000, in fines and/or up to two (2) years of imprisonment. 

What Entities Must File a Beneficial Ownership Information Report?

The companies required to report BOI are corporations, limited liability companies, and entities that are created or registered to do business by filing a document with a secretary of state or similar office (“Reporting Company”).  The additional registered entities include both domestic and foreign entities, limited partnerships, limited liability partnerships, general partnerships and certain trusts.  

Who is a “Beneficial Owner”?

There are two (2) types of Beneficial Owners required to report their BOI.  The first is based on who has “substantial control” of the company, such as an individual who, directly or indirectly, exercises said “substantial control” over the Reporting Company.  This designation includes senior officers of the Reporting Company (e.g., President, CEO, COO, CFO, GC) or anyone who is authorized to make important decisions on behalf of the Reporting Company.  The second type is based on who has “ownership interest” in an entity and encompasses any individual who, directly or indirectly, owns or controls at least 25% ownership interest of the Reporting Company.  

What Information Needs to Be Reported?

A Reporting Company must provide its:

• full name and any name the company is “doing business as”;
• primary business address;
• jurisdiction(s) in which the entity operates; and
• entity Tax Identification Number (TIN or EIN).

The individual Beneficial Owners or Company Applicants must provide their:

• full legal name;
• date of birth;
• residential address (or business address for “Company Applicants,” as defined below); and
• unique identifying number, issuing jurisdiction and image from one of the following:  (1) a passport of the U.S. Government; (2) an identification card issued by a state government; (3) a driver’s license; or (4) a passport from a foreign government.

For Reporting Companies formed on or after January 1, 2024, up to two (2) “Company Applicants” must be identified.  The Company Applicants are the individuals who directly file the document(s) that:  (1) creates the domestic Reporting Company or (2) first registers the foreign reporting company. 

When And How Should This Information Be Filed?

Reporting Companies who already exist as of January 1, 2024 must file their initial report by January 1, 2025.  Reporting Companies created or registered after January 1, 2024 must file their initial report within ninety (90) days of formation.  Entities must file a new report with updates and corrections to BOI within thirty (30) days of the change to the company’s BOI.

The BOI report must be made to the non-public FinCEN database.  Access to the cloud-based database will be limited and only granted to (1) federal agencies engaged in law enforcement, national security, or intelligence activity, to be used in furtherance of such activity; (2) state, local, or Tribal law enforcement for use in criminal or civil investigations and with authorization from a court of competent jurisdiction; (3) certain foreign agencies engaged in law enforcement, national security, or intelligence activity; (4) financial institutions subject to customer due diligence (CDD) requirements, to facilitate compliance with CDD, and their regulators; and (5) certain Treasury officers and employees.

Who Is Exempt? 

The CTA allows twenty-three (23) exemptions, including, among others:  public companies, banks, credit unions, money services businesses, broker-dealers, securities reporting issuers, Securities Exchange Act registered entities, investment companies or investment advisers, venture capital fund advisers, insurance companies, Commodity Exchange Act registered entities, pooled investment vehicles, tax-exempt entities, large operating companies, certain wholly-owned subsidiaries, and inactive entities. 

What is a FinCEN Identifier? 

A FinCEN Identifier is a unique identifier available to all individuals (Beneficial Owners and Company Applicants) and Reporting Companies.  An individual may provide their FinCEN identifier to a Reporting Company to be used in filing a report, instead of providing the Reporting Company with the required personal information.  In certain circumstances, Reporting Companies are also able to obtain a FinCEN identifier.

How to prepare your Company to report under the CTA?

A Reporting Company should make the necessary changes and updates to the company’s organizational chart, confirm the legal structure and organization of your company, and start identifying potential beneficial owners. 

 Contact our offices for assistance in understanding how the Corporate Transparency Act affects your business and assessing your company’s reporting obligations, eligibility for exemptions, and compliance requirements.