Congress has passed a new law, the Corporate Transparency Act (“CTA”), that will affect small business, including limited liability companies, corporations (both S-corporations and C-corporations), and certain partnerships. The CTA was enacted by Congress to provide information about certain entities, their owners, management, and individuals to fight money laundering, tax fraud, and other illegal activities.
The CTA requires reporting companies to provide specific information about the entity, beneficial owners, and company applicants to the US Department of the Treasury's Financial Crimes Enforcement Network (“FinCEN”).
Who Needs to File?
Under the CTA, reporting companies are small businesses such as corporations, LLCs, or similar entities that were created by the filing of a document with the secretary of state.
The CTA provides several categories of companies are exempted from filing beneficial ownership reports. Among others, these entities include securities issuers, domestic governmental authorities, banks, insurance companies, public utilities, and certain accounting firms. FinCEN has provided information on exempt entities at its website: www.fincen.gov/boi. Please consult with your attorney for more information on which entities are exempt.
Reporting Requirements
Reporting companies must report to FinCEN certain information on the company such as legal name, trade names, current U.S. address, jurisdiction of formation, and EIN.
In addition, specific information on each beneficial owner and company applicant of the reporting company must be provided. FinCEN is referring to this as the beneficial ownership information, or BOI. A beneficial owner is considered an individual with at least a 25% ownership interest in the company or an individual that maintains substantial control over the company. Beneficial owners must report and maintain up to date reports of the individual’s full legal name, date of birth, current street or residential address, identifying number and the issuing jurisdiction for a valid, non-expired document (ex. passport or driver’s license), and a copy of the document.
Effective Date
The CTA became effective on January 1, 2024. Reporting companies existing prior to 2024 must file their initial reports within one year of the effective date. Reporting companies created or registered in 2024 must file a report within 90 days after receiving notice of their creation or registration. Reporting companies created or registered on or after January 1, 2025, must file a report within 30 days after receiving notice of their creation or registration. Any changes to reporting information must be updated within 30 days of the change.
Violations and Penalties
Noncompliance with the CTA's reporting requirements can result in significant penalties and the possibility of imprisonment. Fines range from $500 per day up to $10,000 and imprisonment of up to two years.
How to File
BOI reports must be filed electronically. FinCEN's e-filing portal, available at https://boiefiling.fincen.gov/, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI report. The person who submits the BOI report will need to provide their name and email address to FinCEN. There is no fee for filing the report.
If you have any questions about these new reporting rules and how they affect your business, we would be happy to discuss them with you and provide you with recommendations for legal counsel assistance. FinCEN also has a Small Entity Compliance Guide and frequently asked questions to help guide businesses through the reporting requirements. These are available at https://www.fincen.gov/boi/small-business-resources.
This letter is not a substitute for legal advice. Everyone has a unique legal situation, it is therefore heavily recommended that you discuss these legislative changes with your attorney.
