Understanding the Corporate Transparency Act: A Guide to Beneficial Ownership Reporting
UPDATE: The widely-reported Federal District Court injunction suspending the reporting requirements under the CTA has recently been stayed by the Federal Circuit Court of Appeals. Reporting Companies must now comply with new reporting deadlines outlined below. Also note, the FinCEN Website has not been fully updated and continues to inaccurately state that reporting companies are not required to file BOI reports.
Understanding the Corporate Transparency Act: A Guide to Beneficial Ownership Reporting
Introduction:
The Corporate Transparency Act (CTA), a Federal law that became effective on January 1, 2024, requires that privately held companies (with some exceptions outlined below) report Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a division of the Federal Department of Treasury. The goal of the statute is to create a data base that the Federal government can use to combat money laundering, funding of terrorist activities and other illegalities. The BOI Report requires reporting of information about the company itself, as well as the identity of Beneficial Owners - persons who have “substantial control” over the company, and persons holding 25% of more beneficial ownership of the company. In addition, companies formed on or after January 1, 2024 must also report the identity of their Company Applicant – the persons who formed and/or directed the formation of the company. The original reporting deadline for companies formed prior to January 1, 2024 was January 1, 2025, but that deadline has been pushed back to January 13, 2025 (as a result of court rulings in a Federal case challenging the constitutionality of the CTA).1
Reporting Company:
Under the CTA, a reporting company is every U.S. domestic company that was created by the filing of a formation document with a secretary of state or similar governmental unit (i.e., corporations, limited liability companies) and all foreign companies registered to do business in the U.S. Unless exempt (below), all reporting companies are subject to the BOI reporting requirements of the CTA.
Exemptions to Reporting Company:
The CTA has 23 exemptions of certain types of companies from the BOI reporting requirements - generally companies that are otherwise subject to regulation or public filings. These exemptions can be summarized:
1. SECURITIES REPORTING ISSUER
2. GOVERNMENTAL AUTHORITY
3. BANK
4. CREDIT UNION
5. DEPOSITORY INSTITUTION HOLDING COMPANY
6. MONEY SERVICES BUSINESS
7. BROKER OR DEALER IN SECURITIES
8. SECURITIES EXCHANGE OR CLEARING AGENCY
9. OTHER EXCHANGE ACT REGISTERED ENTITY
10. INVESTMENT COMPANY OR INVESTMENT ADVISOR
11. VENTURE CAPITAL FUND ADVISOR
12. INSURANCE COMPANY
13. STATE LICENSED INSURANCE PRODUCER
14. COMMODITY EXCHANGE ACT REGISTERED ENTITY
15. ACCOUNTING FIRM
16. PUBLIC UTILITY
17. FINANCIAL MARKET UTITITY
18. POOLED INVESTMENT VEHICLE
19. TAX-EXEMPT ENTITY
20. ENITTY ASSISTING A TAX-EXEMPT ENTITY
21. LARGE OPERATING COMPANY
22. SUBSIDIARY OF CERTAIN EXEMPT ENTITIES
23. INACTIVE ENTITY
The large operating company exemption applies to companies with over 20 employees and $5 million in gross receipts so long as the company also has a physical location in the United States.
An Inactive Entity is exempt if all six of the following criteria apply:
1. The entity was in existence before January 1, 2020.
2. The entity is not engaged in active business
3. The entity is not owned by foreign persons.
4. The entity has not had a change in ownership in the preceding 12-month period.
5. The entity has not sent or received $1,000 in the preceding 12-month period.
6. The entity does not otherwise hold any kind or type of asset or equity interest in another entity.
Information Required By BOI Report:
Link to the BOI reporting form
No fee is required to file the BOI Report, which can be submitted directly to FinCEN on their dedicated website (link above). Note, many private third parties have set up websites intended to look like the FinCEN website. These third party websites may charge a fee to submit the BOI report, and users have no assurance that information submitted through the third party websites will remain confidential.
The BOI report requires the following information to be included:
• Company Information:
o Legal Name
o Tax Identification Type
o Tax Identification Number
o Country/Jurisdiction of Formation
o Physical Address
• Beneficial Owner Information (control persons and persons holding 25% of more equity):
o Name
o Date of Birth
o Residential Address
o Government ID Number (i.e. passport or driver’s license number)
o Issuing Governmental Entity
o Image of Government ID (to be uploaded as pdf or jpg with BOI Report)
• Company Applicant Information (only applicable to companies formed after January 1, 2024), same information as Beneficial Owners:
o Name
o Date of Birth
o Residential Address
o Government ID Number (i.e. passport or driver’s license number)
o Issuing Governmental Entity
o Image of Government ID (to be uploaded as pdf or jpg with BOI Report)
Beneficial Owners are all persons who either directly or indirectly:
a. Exercise substantial control over the reporting company. Substantial Control can be exercised by the following (i) Senior Officer (ii) individual with authority to appoint or remove certain officers or majority of directors, (iii) an individual that is an important decision maker in for the reporting company and (iv) an individual that has any other form of control over the reporting company. OR
b. Owns or controls at least 25% of the reporting company ownership.
Company Applicants (which applies only to reporting companies created on or after January 1, 2024) are up to two persons who:
a. Directly files the document that creates or registers the company
b. Is primarily responsible for directing or controlling the filing of the document that creates or registers the company.
Filing Deadlines:
Companies created or registered before January 1, 2024 must now file the BOI Report by January 13, 2025.
Companies created or registered between January 1, 2024 and September 4, 2024 have 90 days from the effective date of formation to file a BOI Report.
Companies created or registered after September 4, 2024 that had a previous filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file the BOI Report.
Companies created or registered after January 1, 2025 have 30 days from the effective date of formation to file the BOI Report.
Updates and Penalties:
Updates are required within 30 days of any changes to the information reported on the reporting company’s initial BOI Report. Note, not only must changes in Beneficial Owners be reported, but changes in any information regarding a Beneficial Owner must be reported to FinCEN. This includes a change of address or new driver license number for an existing Beneficial Owner.
Penalties for willful false information or failure to report: $500/day up to $10,000 and possible imprisonment up to 2 years. These penalties apply to the reporting company as well as to the reporting company’s responsible senior officers, Beneficial Owners and Company Applicants. It should be noted that there will be safeguards to protect persons who reasonably thought they were in compliance or comply within a 90 day period after they have been made aware of any such non-compliance.
FinCEN Identifier:
While not a requirement, FinCEN will issue a “FinCEN Identifier” number to a person filing a BOI Report upon request (by checking a box on the BOI reporting form). The purpose of the FinCEN Identifier number is to streamline the reporting process for persons filing BOI reports on behalf of multiple companies. Once obtained, the FinCen Identifier can be used in place of personal information in reports.
Disclosure of Beneficial Ownership Information:
FinCEN can disclose information to specified entities for defined purposes. Recipients include U.S. government agencies, foreign law enforcement, financial institutions, and regulatory bodies.
FinCEN Website.
Reporting is an online process through a dedicated website established by FinCEN. In addition, the FinCEN website contains complete information about the CTA requirements. Particularly helpful are the FinCEN Small Entity Compliance Guide and FAQ page.
Link to the Small Entity Compliance Guide
Link to the FinCEN FAQ page
Link to the FinCEN BOI website
Link to the BOI reporting form
Conclusion:
Understanding the requirements of the Corporate Transparency Act is crucial for companies to comply with the law. The information provided in this website blog is a summary outline only, and necessarily incomplete. For more complete information on the CTA and BOI reporting requirements, please visit FinCEN’s website links above.
1 While the regulations adopted with respect to the CTA set an initial reporting deadline of January 1, 2025 for submitting reports to FinCen, the court in Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-478 (E.D.Tex. Dec. 3, 2024), enjoined the CTA nationwide and stayed the reporting deadlines. Thereafter, the United States Court of Appeal for the Fifth Circuit entered an Order granting a stay of the District Court’s preliminary injunction (Texas Top Cop Shop, Inc. v. Garland, No. 24-40792 (5th Circuit December 23, 2024) and modifying the reporting deadlines.