The Corporate Transparency Act (the “CTA”) is a federal law that went into effect on January 1, 2024 and imposes information reporting obligations on many closely held business entities. Wormser Casey will continue monitoring further developments relating to the CTA and the filing obligations relating to Beneficial Ownership Information (“BOI”) reports. These Frequently Asked Questions are intended to provide a general overview of this new regulatory framework.”
What is the Corporate Transparency Act?
Under the CTA, certain entities that are classified as “Reporting Companies” are required to file a a BOI report with the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) containing information about the Reporting Companies “beneficial owners” in order to enhance corporate transparency and combat money laundering, tax fraud, and other illicit activities.
For more information, FinCEN has published a web page with its rules and other CTA resources as well as an FAQ page.
Who does the CTA apply to?
All “Reporting Companies” are required to submit a BOI report to FinCEN.
A “Reporting Company” includes all entities that are formed or registered to do business in the United States by filing a document with a secretary of state or similar office, subject to certain exemptions. Examples of reporting companies include limited liability companies and corporations, but FinCEN has expressed an expectation that limited partnerships, limited liability partnerships, limited liability limited partnerships, and certain business trusts will also be classified as Reporting Companies.
There are 23 total exemptions to the definition of Reporting Company and the CTA’s reporting requirements. Among these exemptions are: (i) entities not created by a filing a document with a secretary of state or similar office (e.g., political organizations, and certain tax-exempt trusts); (ii) “large operating companies” with more than 20 employees, an operating presence at a physical office in the United States, and more than $5 million in revenue; (iii) certain venture capital funds; (iv) publicly traded companies; (v) insurance companies; (vi) nonprofit entities; and (vii) banks and certain other entities already subject to federal regulatory oversight.
Claiming an exemption requires careful analysis of both the federal regulatory regime and the facts and circumstances relating to an entity and its operations and should be done in conjunction with qualified legal counsel.
As of January 1, 2024, FinCEN estimates more than 32 million Reporting Companies will be subject to the reporting requirements, and an additional 5 million entities will become Reporting Companies each year thereafter.
What information do I need to do include in a BOI Report?
Reporting Companies formed before January 1, 2024 must report the following by January 1, 2025:
Reporting Companies formed after January 1, 2024 and before January 1, 2025 must report the following within 90 days of formation, and Reporting Companies formed on or after January 1, 2025 must report the following within 30 days of formation:
Who is a Beneficial Owner?
A “Beneficial Owner” is any individual who either (a) owns at least 25% of the Reporting Company; or (b) exercises substantial control over the Reporting Company.
“Substantial Control” indicators include: senior officers; individuals with the authority to appoint and remove senior officers or directors; and individuals who direct, determine, or have substantial influence over important decisions of the Reporting Company (e.g., a reorganization, dissolution, or merger; a sale or transfer of principal assets; major expenditures; the incurrence of significant debt; or the issuance of any equity).
Who is a Company Applicant?
A “Company Applicant” is an individual who either (a) directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States; or (b) is primarily responsible for directing or controlling the filing of the relevant document.
Will I have any ongoing reporting obligations?
An initial BOI report only needs to be filed one time; however, an updated BOI report must be filed within 30 calendar days of any change in the reported information regarding the Reporting Company or Beneficial Owners, including changes to a current address or name.
What are the penalties for failing to comply with the CTA?
Failure to comply with the CTA or missing its filing deadlines can result in substantial civil and criminal penalties, including fines up to $500 per day (up to $10,000) and imprisonment of up to two years. The penalties may be imposed on the reporting company or the individual if the individual willfully fails to report or causes another to fail to report.
Will the information I report be accessible to the public?
No. FinCEN has emphasized the security of its Beneficial Ownership Secure System (BOSS), where reports will be submitted. BOI will only be accessible by a federal agency engaged in national security, intelligence, or law enforce activity and to a State, local, or Tribal law enforcement agency if a court of competent jurisdiction has authorized the law enforcement agency to seek the information in an investigation. Financial institutions can obtain BOI to facilitate compliance with customer due diligence requirements of a financial institution with the consent of the Reporting Company.
Please note the information above is provided as general educational information and is not intended to be legal advice.