9th Oct 2024

Corporate Transparency Act
Is your business required to file a BOI report question with an image looking up of business buildings
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The Corporate Transparency Act (CTA) went into effect January 1, 2024. This federal legislation, enacted by Congress in 2021, requires most small to mid-sized businesses in the United States to report who owns and/or controls the business by filing a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network. This is a branch of the United States Department of Treasury (FinCEN).

What is the purpose of this legislation?

The purpose of this legislation is to reduce and prevent financial crimes organized through shell companies. It will inhibit corrupt businesses and prevent criminals from engaging in various types of illegal activity such as money laundering, drug trafficking, terrorism, and financial fraud.

Who is required to file a BOI report?

The entities that are required to file are referred to as “reporting companies.” There are two types of “reporting companies,” domestic and foreign. According to the FinCEN:

*A DOMESTIC REPORTING COMPANY IS A CORPORATION, LLC, OR OTHER ENTITY THAT IS CREATED BY FILING A DOCUMENT WITH THE SECRETARY OF STATE OR ANY SIMILAR OFFICE UNDER THE LAW OF A STATE OR INDIAN TRIBE.

*A FOREIGN REPORTING COMPANY 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 OTHER SIMILAR OFFICE.

There are 23 types of entities that are exempt from submitting a BOI report. These types of businesses are already regulated to disclose identifying information. The 23 exemptions are as follows:

  • Securities reporting issuer
  • Governmental Authority
  • Bank
  • Credit Union
  • Depository institution holding company
  • Money services business
  • Insurance company
  • State-licensed insurance producer
  • Commodity Exchange Act registered entity
  • Accounting firm
  • Public utility
  • Financial market utility
  • Broker or dealer in securities
  • Securities exchange or clearing agency
  • Other Exchange Act registered entity
  • Investment company or investment advisor
  • Venture capital fund advisor
  • Pooled investment vehicle
  • Tax-exempt entity
  • Entity assisting a tax-exempt entity
  • Large operating company
  • Subsidiary of certain exempt entities
  • Inactive entity

Who is the Beneficial Owner of your business?

A company can have multiple beneficial owners. A Beneficial Owner, according to FinCEN, “includes 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.”

An individual has substantial control over a reporting company if they meet any of the following criteria:

  • The individual is a senior officer.
  • The individual has authority to appoint or remove officers.
  • The individual is a decision maker of important matters.
  • The individual has some other substantial control over the business.

When must a BOI report be filed?

If your business was formed prior to January 1, 2024, then the report due date will be January 1, 2025. If your business was formed on or after January 1, 2024, then the report is due within 90 days of formation. If your business is formed on or after January 1, 2025, then the report is due within 30 days of formation.

What information must be included in a BOI report?

The FinCEN requires a few pieces of information to be reported:

*Company information- it must include:

  • Full legal name of the business
  • Any Trade Names or DBA (Doing Business As) names
  • Address of the primary office
  • Tax ID number
  • The jurisdiction of formation

*Beneficial Owner Information- Reporting companies must identify specific information about each of their beneficial owners. This information is kept confidential and is not reported to the public.

*Company Applicants- This may not apply to every reporting company. Company applicants would include individuals such as attorneys, paralegals, accountants, etc., who directly controls and files on behalf of the business entity. If you are reporting Beneficial Owner Information and/or Company Applicant Information (If applicable) the following would need to be included on the report:

  • Full legal name
  • Birthdate
  • Address
  • Unique identifying number and issuing jurisdiction from an acceptable identification document. With this piece of information, they also require an image of the document to also be submitted. (Non-expired passport, driver’s license, etc.)

Are there penalties for not complying with this legislation?

If you fail to comply with the Corporate Transparency Act, or if you report fraudulent information, then you can be subject to civil and/or criminal penalties. You could see civil penalties of $500 for each day the violation continues. You could see criminal penalties of up to two years in prison and/or up to $10,000 in fines. Typically, the criminal penalties would be for senior officers who withhold and do not report the required information.

Be aware that scammers are out there trying to solicit this type of information from small businesses for their own illegal purposes. It is important to know that there are only two ways to submit this information and to file a BOI report, both through the E-filing portal.

The Corporate Transparency Act and the Rules implementing it are new and complex. This article is provided for information purposes only and is not intended to offer legal advice. To ensure that the filing is done properly, it would be advisable to reach out to a business attorney to assist you and your business.

Written by Michael C. Gibbons

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