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Over two years ago, Congress passed the little-known Corporate Transparency Act in an effort to increase transparency of private company ownership and to “help prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity.” The Act obligates virtually every private company formed or licensed to operate in the United States to provide certain information about its “Beneficial Owners” and “Company Applicants.” Failure to report this information may result in civil and criminal penalties. The information must be reported to the Financial Crimes Enforcement Network (“FinCEN”) beginning on January 1, 2024. All private companies and their owners should determine and understand exactly what their new obligations are under the Act, or they could find themselves facing serious penalties.
FinCEN released rules and regulations on September 29, 2022 (the CTA Rules) which specify whether an entity will be subject to the act and the kind of information that covered entities are required to report.
UPDATE: On March 1, 2024, a federal district court in Alabama held that the CTA is unconstitutional. The Court held that the CTA exceeds the Constitution’s limits on the legislative branch and is not a necessary or proper means of achieving Congress’ policy goals. The Court issued an injunction against the government enforcing the CTA against the plaintiffs in that case. Despite the holding that the CTA is unconstitutional, the government is entitled to continue to enforce the statute against other entities.
As a result, our recommendations to companies regarding the CTA remains unchanged. Until clearer guidance is provided, companies should continue to comply with the CTA’s BOI reporting requirements. RRPG will continue to monitor any developments pertaining to this case as they arise.
Which Companies Have to report?
The Act applies to all “reporting companies,” which is defined in the CTA Rules as any corporation, limited liability company (LLC) or other entity that is created/formed by the filing of a document with a secretary of state or any similar state or tribal regulatory office. The definition is broad and covers virtually all types of legal entities, including limited partnerships, limited liability partnerships, limited liability limited partnerships, and business trusts. The CTA Rules provide that certain entities are exempt, including publicly traded companies, nonprofits, governmental authorities, banks, and depository institution holding companies, “money services businesses,” securities brokers and dealers, and accounting firms.
What Information Must be Reported?
An entity that falls within the definition of a “reporting company” is required to file a BOI Report with FinCEN, which identities all of the following information:
Legal name of the company and any d/b/a names
Principal business address
Jurisdiction of formation
Unique identification number (e.g. the entity’s EIN, Dun & Bradstreet (DUNS) number, or FinCEN “identifier”)
With respect to each individual who qualifies as a “beneficial owner” or “company applicant”, full legal name, date of birth, current residential street address (for “company applicants” their current business address), and unique identifying number (social security number or FinCEN “Identifier”)
Scanned copy of the identification document evidencing the unique identifying number.
Who qualifies as a “Beneficial Owner?"
Under the CTA Rules, with respect to a particular reporting company, a “beneficial owner” is any individual who (directly or indirectly) either (a) exercises “substantial control” over such company; or (b) owns or controls 25 percent or more of the ownership interests of such company.
However, an individual who would otherwise qualify as a “beneficial owner” will NOT need to be identified on the BOI Report if the individual is:
a minor child (provided the Report identifies the child’s parent or legal guardian),
acting as nominee, intermediary, custodian, or agent on behalf of another individual
an employee of the reporting company who is acting solely as an employee
an individual whose only interest is a future interest through a right of inheritance, or
a creditor of the reporting company.
Who Qualifies as a “Company Applicant?”
If the reporting company is a domestic company, the “company applicant” is the individual who directly filed the documents that first created/formed such reporting company.
When Does a Company Have to File a BOI Report?
Under the CTA Rules, each domestic reporting company that is formed and each foreign reporting company that is registered/ qualified to do business in the US before January 1, 2024 must file their initial BOI Report prior to January 1, 2025.
For companies formed or registered/ qualified on or after January 1, 2024, they need to file within 90 calendar days of the earlier of (a) the date on which it receives notice that its creation/ formation or registration/ qualification has become effective; or (b) the date on which a secretary of state first provides public notice of such creation/Formation or registration/qualification.
Companies created or registered on or after January 1, 2025, must file a BOI within 30 calendar days after receiving notice that its create or registration is effective.
In addition, if any of the information provided in the most recent BOI Report is inaccurate or if a change occurs, an updated BOI Report must be filed within 30 calendar days after the date on which such change occurs.
What Happens if You Don’t Comply with the Act?
The CTA Rules provide that any person who fails to file any required BOI Report or who willfully provides false or misleading information in connection with any BOI Report, will fact civil penalties of $500 a day while such violation continues, as well as be fined up to $10,000 or be imprisoned for up to two years (or both).
What Happens to the Information You Provide?
Given the confidentiality of the information being collected, FinCEN is required to maintain the information that it collects in a “confidential, secure, and nonpublic database.”
FinCEN is expressly authorized to share the collected information with certain government agencies, financial institutions, and regulators.
How do I file?
You can file a BOI Report and create a FinCEN ID using the E-filing system at https://www.fincen.gov/boi. Any individual who is authorized to act on behalf of the reporting company can file a report on behalf of the reporting company. It is not necessary to use an attorney of a certified public accountant to submit a BOI report to FinCEN. However, reporting companies that need help meeting their reporting obligations can consult with professional service providers such as lawyers or accountants.