Corporate Transparency Act

New Federal Reporting Requirement for Certain Business Entities

There is a new reporting requirement going into effect on January 1, 2024 that will require millions of businesses with qualifying entities to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Congress enacted this requirement in a statute called the Corporate Transparency Act (CTA). The CTA authorized FinCEN to issue regulations concerning who must file a BOI Report, when the Report has to be filed, and what information has to be submitted.

Which Companies Have to File a BOI Report?

There are two categories of reporting companies under the CTA that must file a BOI Report: domestic reporting companies and foreign reporting companies. Domestic reporting companies are corporations, limited liability companies (LLCs), or other entities created or registrable by the filing of a document with a secretary of state (SOS) or any similar office under the laws of either a state of the US or an Indian tribe.

Foreign reporting companies are non-US entities that are corporations, LLCs, or other entities formed under the laws of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a SOS or any similar office under the laws of a state or Indian tribe.

There are certain specific exemptions from the definition of reporting companies under the CTA, which are covered below.

Which Companies Do Not Have to File a BOI Report?

There are 23 specific exemptions from the definition of a reporting company under the CTA.  Those exemptions include large operating companies, public companies, inactive entities, federally registered investment companies and advisers, venture capital fund advisers, certain pooled investment vehicles, insurance companies and producers, public accounting firms, tax-exempt entities and entities assisting tax-exempt entities, governmental authorities, and subsidiaries of certain exempt entities.

The CTA also excludes or exempts certain other highly regulated entities from the reporting requirement, including banks, bank holding companies, and savings and loan holding companies, credit unions, money transmitting businesses and money services businesses, securities brokers or dealers, securities exchange or clearing agencies, other entities not described above that are registered with the SEC under the Exchange Act, regulated public utilities, and financial market utilities.

A “large operating company” is an entity that (i) has more than 20 full-time employees in the US, (ii) is operating at a physical office in the US, and (iii) reported more than $5 million in gross receipts or sales (net of returns and allowances and excluding gross receipts or sales from sources outside the US) on its prior year federal tax return. The operating company itself must be the employer, so full-time employees of affiliated entities do not count towards the number of full-time employees.

An “inactive entity” is any entity that satisfies all of the following: (i) was in existence on or before January 1, 2020 (date of enactment of the CTA), (ii) is not engaged in active business, (iii) is not owned by a foreign person, whether directly or indirectly, wholly or partially, (iv) has not experienced any change in ownership in the preceding 12-month period, (v) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period, and (vi) does not otherwise hold any kind of assets, whether in the US or abroad, including any ownership in any corporation, limited liability company, or other similar entity.

“Subsidiaries of certain exempt entities” are also exempt. These are entities the ownership interests of which are controlled or wholly owned, directly or indirectly, by any of these types of exempt entities:  securities reporting issuer, governmental authority, bank, credit union, depository institution holding company, broker or dealer in securities, securities exchange or clearing agency, other Exchange Act registered entity, investment company or investment advisor, venture capital fund adviser, insurance company, state-licensed insurance producer, commodity Exchange Act registered entity, accounting firm, public utility, financial market utility, tax-exempt entity or large operating company.

What Information Does a Reporting Company Have to Disclose in a BOI Report?

A reporting company must disclose information about its individual beneficial owners, itself and its company applicants (but company applicants are only required to be reported for entities created or registered on or after January 1, 2024).

A “beneficial owner” is any individual who, directly or indirectly, either (i) exercises substantial control over the reporting company, or (ii) owns or controls 25% or more of the ownership interest of the reporting company. The terms “substantial control” and “ownership interest” are more specifically defined in the Small Entity Compliance Guide provided on the FinCEN website.   Note that any of the following may be counted as an ownership interest:  equity, stock, or voting rights; a capital or profit interest; convertible instrument; 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.  Beneficial owners may also include individuals that hold ownership interests in a reporting company through a trust, intermediate entity or similar arrangement.

A “company applicant” is an individual who either directly files the document that creates the entity (if a domestic reporting company) or first registers the entity to do business in the US (if a foreign reporting company) or an individual who is primarily responsible for directing or controlling the filing of the relevant document by another, if more than one individual is involved in the filing.

As to each individual beneficial owner and company applicant, a reporting company must disclose:

• Full legal name
• Date of birth
• Complete current address (individual’s street address, except that company applicants can use their business address)
• A unique identifying number along with an image of the document with the unique identifying number (e.g., non-expired U.S. driver’s license or passport).

A reporting company must report the following about itself:

• Full legal name, any trade names, and any doing business as (d/b/a) or trading as (t/a) names under which it conducts business (whether or not formally registered)
• Complete current address, its state, tribal, or foreign jurisdiction of formation (for a foreign reporting company, the state or tribal jurisdiction where it first registered in the US)
• IRS taxpayer identification number (TIN), including an employer identification number (EIN).

When Does a Reporting Company Have to File a BOI Report?

Initial Reports

• A reporting company that is created or registered before January 1, 2024 has until January 1, 2025 to file its initial BOI Report.
• A reporting company that is created or registered on or after the January 1, 2024, but before January 1, 2025, must file its initial BOI report within 90 days after receiving actual or public notice that the company’s creation or registration is effective.
• A reporting company that is created or registered on or after January 1, 2025, must file its initial BOI report within 30 days after receiving actual or public notice that the company’s creation or registration is effective.

Reporting changes to the information in your BOI Report or correcting inaccuracies.

• A reporting company has 30 days to:
  • Report any changes to information in its BOI report regarding itself or its beneficial owners (e.g., the reporting company changes its name or address or becomes exempt or a beneficial owner transfers their interest or there is a change to their address or unique identifying number).
  • Correct any inaccuracies in its BOI Report, if it becomes aware or has reason to know of the inaccuracy and such correction must be filed within 30 days after you become aware of the inaccuracy.

How Does a Reporting Company File a BOI Report?

Reporting companies will have to report beneficial ownership information electronically through the FinCEN website at www.fincen.gov/boi.  You can file the information directly or you can use a corporate servicing company to facilitate the filing. If you want to use a corporate servicing company, we recommend you contact RASi (Registered Agent Solutions, Inc); their website is www.rasi.com/compliance-governance/corporate-tranparency-act.asp.

What are the Penalties if a Reporting Company Fails to Comply?

There are both civil and criminal penalties for willful failure to report BOI within the required time period or willfully providing false or fraudulent information.  Such willful failure to report or willfully providing false information may result in a maximum civil penalty of $500 per day that the violation continues, and criminal penalties of up to $10,000, imprisonment for up to two years or both.  Penalties may also apply to reporting companies and individuals who cause a reporting company not to report or the senior officers of a reporting company at the time of its failure to fulfill its obligation to accurately report or update BOI.

There are no penalties for filing an inaccurate BOI Report if a corrected report is filed within 30 days of a reporting company becoming aware or having reason to know of the inaccuracy and the corrected report is filed within 90 calendar days of the deadline for the original report.

Where Can I Find More Information?

FinCEN’s website www.fincengov/boi is easy to navigate and has videos, brochures, FAQs, and many other materials on the CTA.  Also, corporate reporting services, such as RASi, have good information and resources at its website, which is listed above.

If you need assistance with understanding any of the requirements under this new law, you can reach out to any one of the attorneys in our firm. If you need assistance with filing the BOI Report, then contact RASi or another corporate reporting service. We are not able to assist or facilitate the filing of the BOI Report.