Corporate Transparency Act and its Potential Impact

The Corporate Transparency Act (CTA) is a new federal law impacting millions of small businesses across the United States.  The CTA is effective January 1, 2024.  The CTA was passed with a goal to enhance transparency in both entity structures and ownership. Under this new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information Report (“BOI Report”) to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  Businesses should take steps to ensure they follow reporting and related compliance with the CTA.  Violations of the CTA are subject to both criminal and civil penalties.  

Is your entity a Reporting Company?

Each entity that is formed in the U.S. or registered with a U.S. state to do business, including foreign entities, will need to be analyzed to determine if it will be required to file a BOI Report.  Reporting Companies include corporations, limited liability companies, limited partnerships and any other entity created by filing documentation with a Secretary of State or any similar office in any U.S. state.  Limited exceptions exist, primarily for tax-exempt entities and large companies (based on statutory thresholds for number of employees and gross revenues).  

When must BOI Reports be filed?

Each entity that is considered a reporting company must file an initial BOI Report, must update that report if there is a change to information previously submitted, and must correct any inaccurate reports. Entities created before January 1, 2024 must file their initial report before January 1, 2025. Entities created on or after January 1, 2024 must file their initial report within 90 days of creation (however entities created on or after January 1, 2025 must file their initial BOI Report within 30 days of the company’s creation). Company’s must update the BOI Report within 30 days after any change to the entity’s status or the information in the BOI Report, provided that information regarding the Company Applicant does not need to be updated so long as it is accurate as of the initial filing.  Additional reports must also be filed to correct any inaccurate information in the report. 

What information is included in the BOI Report?

The initial BOI Report must contain (1) the full name of the company, (2) any trade name or “doing business as” name, (3) the business street address, (4) the jurisdiction of formation, and (5) the taxpayer identification number. The reporting company must also provide the beneficial ownership information for each Beneficial Owner and Company Applicant. 

Who is a Beneficial Owner and/or Company Applicant?

Under the CTA, a “Beneficial Owner” is generally an individual who either exercises substantial control over the entity or owns or controls not less than 25% of the ownership interests of the entity. This definition is subject to further clarification through the regulations associated with the statute, as well as several exceptions such as, but not limited to, minor children, nominees and certain employees. A “Company Applicant” under the CTA generally includes the individual who made the filing creating the reporting company and the individual who is primarily responsible for directing the filing. 

What is included in Beneficial Owner Information?

The information included as beneficial owner information includes (1) the individual’s full legal name, (2) their date of birth, (3) their current residential address (however a business street address may be used for a company applicant), and (4) a unique identifying number from an acceptable identification document such as a passport or driver’s license, and (5) an image of the acceptable identification document. If an individual who is required to provide this information does not wish to provide it directly to the reporting company, they can instead submit it themselves to FinCEN and receive a FinCEN identifier which they can provide to the reporting company in lieu of their beneficial owner information. 

Who can access the Information?

The information provided to FinCEN is not accessible to the public. Instead, certain federal and state agencies, the Department of Treasury and other limited parties may obtain the information through specific procedures and subject to limitations. 

It is important to take time to consider whether an entity that is a part of your business or estate plan must file a report under the CTA. Failure to file a report or filing a report incorrectly can result in both civil and criminal penalties. If you have questions regarding the CTA, or need assistance with the required filings, please reach out to our firm. 

Disclaimer: This information does not constitute tax or legal advice, does not create an attorney-client relationship, and is intended for informational purposes only. Unless former clients enter a new engagement with our firm, we will not undertake an independent review of your entity as it relates to the CTA and will not file a BOI Report (or any other filing) on your behalf.  Our firm will only make CTA filings and/or discuss the impact of the CTA with clients who have affirmatively contacted us to do so and pursuant to a new engagement specifically including CTA issues.