Enacted in 2021, the Corporate Transparency Act (CTA) aims to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in the United States and specific foreign entities accessing the U.S. market. Businesses that meet certain criteria must file periodic reports with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) providing details on certain individuals who are associated with that business. The new CTA regulations went into effect on January 1, 2024.

What Companies Are Required to Report Beneficial Ownership Information (BOI) to FinCEN?

Companies required to file BOI reports with FinCEN are called “reporting companies”. There are two types of reporting companies:

1. Domestic reporting companies – Corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
2. Foreign reporting companies – Entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a foreign qualification document with a secretary of state or any similar office.

Sole proprietorships (businesses that operate without an entity filing with a secretary of state) are not reporting companies.

What Will a Reporting Company Have to Report about Itself?

A reporting company will have to report:

1. Its legal name;
2. Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
3. The current street address of its principal place of business (P.O. boxes cannot be used);
4. Its jurisdiction of formation or registration; and
5. Its Employer Identification Number (EIN) or Taxpayer Identification Number (TIN) (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

A reporting company will also have to indicate whether it is filing an initial report, or a correction or an update of a prior report.

Are There Any Companies That Are Exempt from the BOI Filing Requirements?

Yes. Publicly traded companies and most non-profits are exempt.

In addition, there are 23 specific business types are that exempt from BOI filing requires including: banks, credit unions, broker/dealers, investment companies and investment advisors, insurance companies, and accounting firms.

In addition, businesses that qualify as “large operating companies” are exempt from the filing requirements.

What Businesses Qualify under the “Large Operating Company” Exemption?

In order to qualify for the large operating company exemption, a business must meet ALL of the following criteria:

1. Employs more than 20 full-time employees or full-time equivalents (FTE). A “full-time employee” means, with respect to a calendar month, an employee who is employed on average at least 30 hours per week.
2. At least 20 of those full-time employees or FTEs are located in the United States.
3. Has a physical operating presence in the United States.
4. Has more than $5,000,000 in gross annual receipts/sales.

What Is a Beneficial Owner?

A beneficial owner of a business is an individual who directly or indirectly: (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests. 

What Is Substantial Control?

An individual can exercise substantial control over a reporting company in several ways. If the individual falls into any of the categories below, the individual is exercising substantial control:

• The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
• The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
• The individual is an important decision-maker for the reporting company.

What Will a Reporting Company Have to Report about Its Beneficial Owners?

For each individual who is a beneficial owner, a reporting company will have to provide:

1. The individual’s name;
2. Date of birth;
3. Residential address; and
4. An identifying number from an acceptable identification document, such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.

The reporting company will also have to report an image of the identification document identified in Item 4 above.

When Are BOI Reports Due?

For businesses that were in business before January 1, 2024, BOI reports must be filed with FinCEN by no later than January 1, 2025.

For businesses that are formed between January 1, 2024 and January 1, 2025, BOI reports must be filed within 90 calendar days of when the business receives confirmation of its creation or that its registration is effective.

For businesses that are formed after January 1, 2025, BOI reports must be filed within 30 calendar days of when the business receives confirmation of its creation or that its registration is effective.

Are BOI Reports Required To Be Filed Annually?

No, there is no annual reporting requirement. However, any changes in beneficial ownership that occur after the initial report must be reported to FinCEN within 30 days after the date of change.

Are There Penalties for Failing to Timely File BOI Reports?

Yes. A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

Currently, FinCEN has advised that due to the newness of the regulation, inadvertent late filings may not be penalized if made within 90 days of the original filing deadline. However, this is just a policy for now and can be changed at any time. A reporting company should not rely on having any specific “grace periods” in the case of late filings.