What is this about an upcoming filing deadline?

Under the Corporate Transparency Act (“CTA”), all non-exempt entities formed or registered to do business in the United States prior to January 1, 2024, must file a beneficial ownership information report (“BOI Report”) with the United States Treasury’s Financial Crimes and Enforcement Network (“FinCEN”) by December 31, 2024.

A BOI Report contains information regarding the individuals who own and/or control an entity. Failure to comply with the CTA’s reporting requirements may result in significant financial and criminal penalties. If you have not already filed BOI Reports for your entities, you need to act now to comply with the CTA reporting requirements before the year-end deadline. 

Remind me, what is the Corporate Transparency Act?

Enacted as part of the Anti-Money Laundering Act of 2020, the CTA aims to combat financial crimes such as money laundering, tax fraud, terrorist funding, and more through transparency in the ownership of business entities. The CTA requires certain companies, typically smaller and otherwise unregulated companies, to each file a BOI Report with FinCEN, identifying their “Beneficial Owners” – those people who own and/or control the company.

Companies required to report this information, called “Reporting Companies,” include all domestic and foreign entities formed or registered to do business in the United States through the filing of a document with a secretary of state or similar office. This includes all existing, non-exempt corporations, including not for profit corporations, LLCs, LLPs, LPs, and business trusts. 

Could my company be exempt?

The CTA lists 23 specific exemptions to filing BOI Reports. Most of the exemptions apply to entities that are already subject to substantial federal reporting requirements, such as public companies, banks, securities brokers and dealers, insurance companies and registered public accounting firms. Also exempt are:

•  “Large Operating Companies” that meet all of the following:

1. Employ more than 20 full time employees in the United States (not counting employees of affiliated entities);
2. Have an operating presence in the U.S.; and
3. Filed a Federal income tax return or information return in the U.S. for the previous year reporting more than $5 million in gross receipts or sales from U.S. sources on a consolidated basis.

• Certain tax-exempt entities and tax-exempt trusts, and political organizations.
• Subsidiaries which are controlled or wholly-owned, directly or indirectly, by one or more of the foregoing exempt entities.

If an entity qualifies for an exemption, no further action is required.  Note that a newly formed entity will not be able to satisfy the requirements of a “Large Operating Company” in its first year of existence.

What information must be reported to FinCEN?

All non-exempt Reporting Companies must report: (i) the entity’s full legal name; (ii) any trade or d/b/a name; (iii) its principal address; (iv) the jurisdiction of formation or registration; (v) its Tax ID number; and (vi) its owners and controlling persons (i.e., the “Beneficial Owners”).

The BOI Report must include the following for each Beneficial Owner: (i) full legal name; (ii) date of birth; (iii) current residential address; and (iv) a copy of either that person’s non-expired U.S. passport, or state driver’s license, or other identification document issued by a state, local jurisdiction or tribe, or, if an individual does not have any of the previously listed documents, a foreign passport. 

Who is a Beneficial Owner?

A Beneficial Owner is an individual who (i) directly or indirectly owns or controls at least 25% of the “ownership interests” of the Reporting Company; and/or (ii) directly or indirectly exercises “substantial control” over the Reporting Company. While a Reporting Company may have multiple Beneficial Owners, all must have at least one Beneficial Owner.

• To determine whether an individual owns a 25% or greater ownership interest, any of the following may be considered an ownership interest: equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.
• An individual exercises substantial control if the individual meets any of the following: 

1. is a senior officer (including President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, General Counsel and any other officer who performs a similar function);
2. has authority to appoint or remove certain officers or a majority of directors (or persons performing similar decision-making functions) of the Reporting Company;
3. is an important decision-maker (including managers and managing members of LLCs, directors of corporations and general partners of LPs); or
4. exercises any other form of substantial control over the Reporting Company. 

There is no limit to the number of individuals who can be reported for exercising substantial control.

What about companies formed after January 1, 2024?

An entity formed after January 1, 2024 currently has 90 days to file its initial BOI Report, which must contain, in addition to the information discussed above, information regarding its “Company Applicant” – the individual(s) who (i) directly filed the formation or registration document of the Reporting Company with the secretary of state or similar office; and (ii) who was primarily responsible for directing such filing. A maximum of two individuals can be reported. The Company Applicant information is only required for newly formed entities. Starting in 2025, BOI Reports for newly formed entities will be due within 30 days of formation. 

What if my company does not comply with the CTA?

Civil and criminal penalties may be assessed for the willful failure to report or the willful provision or attempt to provide false or fraudulent information, including fines of up to $10,000 and up to two years of imprisonment. Senior officers of a Reporting Company who fail to file may be held accountable for such failure.

Who Can File The BOI Report?

The Reporting Company can file the BOI report itself, or a company’s accountant or tax advisor can file the BOI report, or some corporate services companies offer this service, or an attorney can assist.