Enacted by Congress in 2021 as part of the National Defense Authorization Act, the Corporate Transparency Act (CTA) aims to mitigate money laundering, tax fraud, and other illicit activities by capturing more information about the ownership of specific entities operating in or accessing the U.S. markets.
Effective January 1, 2024, the Corporate Transparency Act requires millions of small businesses to report ownership information to FinCEN (Financial Crimes Enforcement Network) which falls under the U.S. Department of the Treasury (DOT).So, who is impacted by CTA? How does one file a report? What is the risk of non-compliance? In this blog, we’ll cover everything you need to know about this new reporting requirement.
Scope of the Act
The CTA implements uniform beneficial ownership information reporting requirements for small businesses that are corporations, limited liability companies, and other business entities. The CTA mandates that certain information about the business owners must be provided to FinCEN; and there are significant penalties for non-compliance.
The scope of this regulation is nearly universal for all business entities in the U.S. There are roughly 21.6 million LLCs in the United States, 1.7 million traditional C-Corporations, 4.3 million partnerships, 5 million S-Corporations, and 23 million sole proprietorships. Sole proprietors are not counted for the CTA, but that leaves a staggering 32.6 million businesses who are impacted by this new legislation. And, 99.9 % of these entities have fewer than 20 employees and generate less than $5 million in annual revenue.
CTA Beneficial Ownership Information Filing Details
Here’s everything you need to know about Beneficial Ownership Information (BOI) filings…
What Is a “Beneficial Owner”?
A beneficial owner is any individual who, directly or indirectly:
Exercises substantial control over a “reporting company” (i.e., a company that is required to report)
OR
Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual might be a beneficial owner through substantial control, ownership interests, or
both. Reporting companies are not required to report the reason (i.e., substantial control or
ownership interests) that an individual is a beneficial owner.
Who Is Required to File?
Corporations, limited liability companies, and other business entities that were created by filing with a Secretary of State or a similar office to create the entity or, for foreign companies, a registration to do business in the United States are all required to file.
Is Anyone Exempt from Filing?
The CTA contains 23 exemptions for a majority of large companies, such as publicly traded corporations and businesses that the federal government heavily regulates.
The exemption also includes any business that meets all of the following criteria:
Employs more than 20 employees
Reports more than $5 million in gross receipts
Maintains a physical presence at a business office in the United States
Is There an Owner Opt-Out Option?
There is no owner opt out option. If your brother-in-law is a co-owner, his personal information must be filed along with your information. It does not matter if the owner is active or inactive in the business. The mere fact that a sufficient ownership interest exists, or that substantial control exists, triggers the requirement to file personal information for the owners.
What Do I File?
You will need to file a beneficial owner report with FinCEN. This report will include each beneficial owner’s full legal name, birth date, address, and an identifying number from a driver’s license, passport, or other approved legal document, as well as a photograph of the document displaying the identifying number. Additionally, you will also need to provide your company’s legal name and any trade name/DBA (Doing Business As), address, jurisdiction where it was formed or first registered, and its taxpayer identification number. Once reported, FinCEN will include this information in a database for use by authorized government authorities and financial institutions. There can be up to two individuals who qualify as company applicants: the one who files the document and the one responsible for the document.
When Do I Need to File?
If your entity was established or registered before January 1, 2024, you are required to file by January 1, 2025.
If your entity was established after January 1, 2024, the filing is due within 90 calendar days of receiving actual or public notice that your company has been created.
How Do I File?
Beneficial Ownership Information (BOI) filings are submitted through the FinCEN website: https://boiefiling.fincen.gov/.
Is There a Cost to File?
There is no cost to file; and you do not have to pay anyone to do the filing as you can do it yourself.
How Long Does it Take to File?
If you have an image of each owner’s passport or driver’s license and all other relevant information regarding the owners and your business, it only takes about 5 to 10 minutes to file the report through the online portal.
What Are the Penalties for NOT Filing?
The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in civil or criminal penalties. The civil penalties can cost up to $500 for each day that the violation continues; and criminal penalties can include imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fail to file a required BOI report may be held accountable for that failure.
Providing false or fraudulent beneficial ownership information could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document.
Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.
Are There Any Available Resources?
To help small entities comply with the beneficial ownership information reporting rule, FinCEN has developed a Compliance Guide.
