The Corporate Transparency Act and Entities Subject to It
The Corporate Transparency Act (“CTA”) was enacted by Congress on January 1, 2021 as part of the National Defense Authorization Act and went into effect on January 1, 2024.[i] The CTA was established as part of an effort to combat money laundering, terrorist financing, corruption, and tax fraud. The CTA establishes that certain entities (each a “reporting company”) must file beneficial ownership information reports (each a “BOI” report) with the Financial Crimes Enforcement Network (“FinCEN”), a bureau within the U.S. Department of Treasury. Domestic companies required to file a BOI report include corporations, limited liability companies or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or American Indian tribe. A foreign company required to file a BOI report is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.[ii]
Deadlines for Filing an Initial Beneficial Ownership Interest Report
Business entities formed prior to January 1, 2024 will have until January 1, 2025, to file a BOI report with FinCEN. However, business entities formed or registered on or after January 1, 2024 will have ninety (90) calendar days following the date of formation or registration to file their initial BOI reports. Entities formed or registered on or after January 1, 2025, will only have thirty (30) calendar days following the date of formation or registration to file their initial BOI reports with FinCEN.[iii] There is no fee due with the filing of the initial BOI report (or any subsequent BOI report).
Entities Exempt from Beneficial Ownership Interest Reports
Notably some entities that would be classified as reporting companies may in fact qualify for exemptions from filing with FinCEN. Examples of such entities include, but are not limited to, the following: a tax-exempt entity, an inactive entity, a bank or other financial institution, a governmental entity and a public accounting firm. Importantly, under the CTA there are twenty-three (23) exemptions that may apply to an entity that would traditionally be required to file a BOI.[iv] However, simply because an entity falls under a named exemption category does not mean that it is in fact exempt; the entity must meet the underlying criteria associated with the exemption as well. For example, in order for a public accounting firm to be classified as an exempt entity, it must be registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212).
Information Provided on a Beneficial Ownership Interest Report
A reporting company must provide certain information about itself as well as its beneficial owners[1] and (if applicable) its company applicant.[v] A beneficial owner is defined as “any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.”[vi] The definition of substantial control encompasses a number of individuals exercising certain powers within the reporting company, including, but not limited to, (a) any individual who directs, determines or has substantial influence over the reporting company’s business, finances and/or structure, (2) any person holding the position of or exercising the authority of a senior officer such as a president or chief financial officer, or (c) any individual or internal governing body with the power to appoint or remove a reporting company’s senior officers.[vii] Under the CTA, there are five categories of people or entities that are exempt from the beneficial owner classification: (i) a minor child (provided a parent or legal guardian is reported as a beneficial owner); (ii) nominees or intermediaries acting on behalf of a beneficial owner; (iii) employees (excluding senior officers) whose substantial control over, or economic benefits from the reporting company are derived solely from their status as employees; (iv) future inheritors; and (v) creditors.[viii]
A reporting company is only required to file information regarding its company applicant if it is a domestic reporting company created or a foreign reporting company registered to do business in the United States on or after January 1, 2024.[ix] A “company applicant” is one of the following: (i) the individual who directly files the document that creates the domestic entity, or first registers the foreign entity to do business in the United States; or (ii) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.[x]
FinCEN requires a BOI report to include the following regarding the reporting company itself: (i) the legal name of the company; (ii) its trade name (or d/b/a) if applicable; (iii) the current street address of its principal place of business or for a foreign entity the address from which it conducts business in the United States; and (iv) its taxpayer identification number (EIN/SSN/ITIN, as appropriate).[xi] As to the beneficial owners, the reporting company must provide each individual’s legal name, date of birth, address, a unique identifying number from an acceptable identification document (e.g. driver’s license number or Social Security number), the name of the state or jurisdiction that issued the acceptable identification document and an image of the identification document. If the reporting company is required to report information for company applicants, the CTA requires that the same information provided for the beneficial owners be supplied for said applicants.[xii] However, if a company applicant is registering a company in the course of his or her employment/business, that individual’s business address rather than residential address should be supplied.[xiii]
Filing Additional Beneficial Ownership Interest Reports to Note Changes to or Inaccuracies in the Initial BOI Report
Once a reporting company files its initial BOI report, it will only be responsible for filing additional BOI reports to inform FinCEN of changes to the information filed in previous reports or to correct inaccurate information in the same.[xiv] There is no annual reporting requirement. Each reporting company will have thirty (30) days from when the reporting company becomes aware or has reason to know of the needed change to or inaccuracy in earlier reports.[xv] There are no filing fees due when submitting any of the foregoing BOI reports. An important instance when a change of information BOI report must be filed is in the event a reporting company files an initial BOI report and subsequently there is a change in the beneficial owners and the interest that they each hold in the company.
Who is Allowed Access to a Company’s Beneficial Ownership Interest Report
FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institution.[xvi]
Noncompliance with the Corporate Transparency Act
The CTA provides that willfully reporting or attempting to report false or fraudulent beneficial ownership, or willfully failing to report or make updates to the reported data shall be punished with a civil penalty of up to Five Hundred Dollars ($500) for each day that the violation continues, or criminal penalties, including imprisonment for up to two years and/or a fine of up to Ten Thousand Dollars ($10,000).[xvii]
[1] If an individual provides his or her four pieces of information to FinCEN directly, the individual may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a BOI report in lieu of the required information about the individual ( See 31 U.S.C. §5336(a)(6))
[i] 31 U.S.C. 5336
[ii] 31 U.S.C. § 5336(a)(11)(A)
[iii] 31 CFR 1010.380(a)(1)(i-iv)
[iv] 31 U.S. Code §5336(a)(11)(B)
[v] 31 U.S.C. § 5336(a)(2)
[vi] Beneficial Ownership Information Reporting Rule Fact Sheet, Financial Crimes and Enforcement Network, https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet (lasted visited on January 26, 2024)
[vii][vii]Beneficial Ownership Information Reporting, Financial Crimes Enforcement Network, https://fincen.gov/boi-faqs#D_2 (last visited on January 26, 2024)
[viii] 31 U.S.C. § 5336(a)(3)(B)
[ix] Beneficial Ownership Information Reporting, Financial Crimes Enforcement Network, https://fincen.gov/boi-faqs#D_2 (last visited on January 26, 2024)
[x][x] 31 U.S.C. § 5336(a)(2)
[xi] 31 CFR 1010.380(b)(1)(i)
[xii] 31 CFR 1010.380(b)(1)(ii)
[xiii] 31 CFR 1010.380(b)(1)(ii)(1)
[xiv] 31 CFR 1010.380(2)(i)
[xv] Id.
[xvi] 31 U.S.C. § 5336(c)(2)(A)
[xvii] 31 U.S.C. § 5336(h)(3)(A)
