The Corporate Transparency Act (CTA) was enacted by Congress in January 2021 to address the issue of anonymous shell companies being used to facilitate illicit activities such as money laundering, terrorism financing, and tax evasion. The CTA requires that companies formed or registered in the United States must disclose the names of all beneficial owners or persons controlling the company.

The purpose of the CTA is to provide law enforcement agencies with access to this information to help them investigate and prosecute criminal activities. The database of information will not be publicly accessible except for law enforcement agencies, financial institutions, and other authorized parties.

The Financial Crimes Enforcement Network (FinCen) issued and published its final rule on September 30, 2022, outlining the information required to be submitted.

Note, FinCen has yet to provide guidance on reporting forms and how the filing process will actually work.

What companies are affected?

Only two types of companies are required to report:

1. A domestic reporting company is a company that is created by filing with the Secretary of State or a similar office. This includes, corporations, limited liability companies (LLC), and limited partnerships.

2. A foreign reporting company is a company that is created in a foreign country but registered to do business in the United States by filing with the Secretary of State or similar office.

What companies are exempt from filing?

 The final rules contain 23 exemptions for companies that do not have to file the Beneficial Ownership Information (BOI) Report. Most of the exemptions include companies that are either highly regulated, for example, publicly traded companies, banks, financial institutions, broker-dealers, and insurance companies.

There is also a “large operating company” exemption which applies to companies that: (1) have 20 or more full time employees; and (2) filed an income tax return in the previous year with at least $5 million in gross receipts or sales; and (3) have an operating presence or physical office within the United States.

When do companies have to file?

1. Companies created or registered before January 1, 2024, must file the BOI Report before January 1, 2025.
2. Companies created or registered after January 1, 2024, must file the BOI Report within 30 calendar days of receiving notice of their registration or creation.

What information is required on the BOI Report?

Reporting Company Required Information:

1. its full legal name;
2. any trade or “doing business as” names;
3. a complete current address consisting of:

(i)           in the case of a reporting company with a principal place of business in the United States, the street address of the principal place of business, and

(ii)           in all other cases, the street address of the primary location in the United States where the reporting company conducts business (must be physical address);

4. the state, tribal or foreign jurisdiction of formation;
5. for a foreign reporting company, the state or tribal jurisdiction where the company first registers; and
6. the IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

Beneficial Owner Required Information:

A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls not less than twenty-five percent (25%) of the ownership interests of the entity. There are a few exceptions, such as the minor children of a beneficial owner or a person that is solely an employee of the reporting company.

1. full legal name;
2. date of birth;
3. current, as of the date of report, residential or business street address (must be physical address);
4. unique identifying number from an acceptable identification document defined as:

(i)            a non-expired U.S. passport;

(ii)          a non-expired identification document issued by a state, local government or Indian tribe;

(iii)         a non-expired driver’s license issued by a state; or

(iv)         if the individual lacks all of the foregoing documents, a non-expired foreign passport; and

5. Image of document the unique identifying number came from.

Company Applicant Required Information:

Reporting companies created or registered on or after January 1, 2024, must report the same information for “company applicants” as beneficial owners. Company applicant is defined as the following 2 persons:

1. the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
2. the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Company Applicant must provide:

1. full legal name;
2. date of birth;
3. current, as of the date of report, residential or business street address (must be physical address);
4. unique identifying number from an acceptable identification document defined as:

(i)           a non-expired U.S. passport;

(ii)          a non-expired identification document issued by a state, local government or Indian tribe;

(iii)         a non-expired driver’s license issued by a state; or

(iv)         if the individual lacks all of the foregoing documents, a non-expired foreign passport; and

5. Image of document the unique identifying number came from.

Important Note: Applicant information is NOT required to be reported for entities already formed or registered prior to the January 1, 2024, effective date.

Updating Information

If the information about the reporting company or its beneficial owners changes, the reporting company will need to submit updated information within 30 days after the change occurs.

Important note: reporting companies are NOT required to update applicant information to the extent that the applicant’s required information changes after initial reporting.

If the report was filed with inaccurate information, the reporting company has 30 days from which they became aware of the inaccuracy to file an updated report.

Penalties for Failure to File: 

• $500 per day civil penalty and/or
• $10,000 fine or 2 years imprisonment

Safe Harbor: Penalties shall not apply, if any person that has reason to believe that any BOI Report submitted by the person contains inaccurate information and voluntarily and promptly, and consistent with FinCEN regulations, submits a report containing corrected information no later than 90 days after the date on which the person submitted the inaccurate report.