Reporting Requirements under the Corporate Transparency Act
Effective January 1, 2024, certain businesses are required to register with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) under the Corporate Transparency Act (“CTA”). A business required to report under the CTA is referred to as a “Reporting Company.” It is anticipated that over 30 million businesses will be required to report under the CTA.In addition, the CTA requires the disclosure of certain beneficial ownership information (“BOI”) of certain entities from people who own or control such entities.
The BOI reporting requirement intends to enhance transparency and combat financial crimes. The CTA is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and reporting on certain types of financial transactions. Under the CTA, BOI reports will be filed with FinCEN. Below is some information detailing the Who, What, When and How for you to consider as you undertake this new reporting requirement.
What is the Penalty for Not Complying?
The penalties for non-compliance with the CTA are potentially severe. Any person who provides false information or fails to comply with the reporting requirements can be liable for civil penalties of up to $500 per day if the violation continues. Violators may also be subject to criminal penalties of up to $10,000 and imprisonment for 2 years.
What Entities are Required to Comply With the CTA’s BOI Reporting Requirement?
Entities organized both inside and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies subject to reporting include corporations, LLCs or any similar entity created by the filing of a document with a secretary of state or any similar state office. Foreign companies subject to reporting include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state by filing a document with a secretary of state or any similar state office. Whether domestic or foreign, companies are subject to reporting unless they fall within one of 23 categories of exemptions from reporting. Such reporting is done on an entity-by-entity basis (there is no aggregation concept to allow consolidated reporting of related entities).
What Types of Companies are Exempt From the Reporting Requirements?
There are 23 categories of exemptions.[1] Included in the list of exemptions are banks, credit unions, securities brokers/dealers, SEC-reporting companies, insurance companies, tax-exempt entities and public accounting firms. In addition, certain “large operating entities” are exempt from filing.
To qualify for the large operating entity exemption, the company must:
- Employ more than 20 full-time employees;
- Have reported more than $5,000,000 in gross revenue on the prior year’s tax return; and
- Be physically present in the U.S.
If your business does not meet one of the 23 categories of exemptions, you most likely have a BOI filing requirement under this legislation.
Who is a Beneficial Owner of a Reporting Company?
A beneficial owner is any individual who either directly or indirectly:
- Exercises “substantial control” over the Reporting Company; or
- Owns or controls at least 25% of the Reporting Company’s ownership interest.
Determining who is deemed to exercise substantial control over a Reporting Company will require an analysis of the facts and circumstances unique to each entity and each individual. Generally, the definition includes anyone who directs, determines or has substantial influence over important decisions made by the Reporting Company. This includes any senior officers, regardless of formal title or if they have an ownership interest in the business.
What Must Be Reported?
Reporting Companies formed before 2024 are required to deliver to FinCEN a report containing information about the Reporting Company, as well as the following information about each beneficial owner of the Reporting Company:
- Full legal name
- Date of birth
- Current business or residential address
- A unique identifying number from an acceptable identification document (i.e., passport, driver's license, etc.) or FinCEN identifier.
When Must Companies Report?
Different filing timeframes depend on when an entity is organized/formed:
- Existing entities created before January 1, 2024 – Must file by January 1, 2025.
- New entities created during 2024 – Must file within 90 days of formation.
- New entities created after December 31, 2024 – Must file within 30 days of formation.
In addition, when there are any changes to a Reporting Company’s BOI information, the business has 30 days from the date of that change to file an updated report. This requirement is triggered by the addition or removal of Beneficial Owners as well as changes to a Beneficial Owner’s personal information.
How Do I File?
BOI reports under the CTA must be filed with FinCEN through an online portal. There is no fee associated with the filing of a BOI report.
Who is Responsible for Reporting?
Compliance with the CTA is your responsibility. The foregoing summary is general information and is not legal advice suited to your specific circumstances. Importantly, Barrett McNagny, LLP (Barrett) does no registration with FinCEN. Barrett can provide information to assist you in filing your registration and also provide information on commercial services that can help with preparing and filing CTA filings on your behalf. Barrett clients who registered have reported a positive experience completing their initial registration.
If you have any questions regarding the application of CTA to your business, whether your business qualifies for an exemption from registration, or if you desire assistance with your initial registration or updates to an existing registration, please contact your Barrett relationship lawyer directly.
[1] See Section 1.2 of the FinCEN Compliance Guide on the fincen.gov website for exemptions.