What is the Corporate Transparency Act and who needs to report Beneficial Ownership Information to the FinCEN?

The Corporate Transparency Act (CTA) was passed in January 2021, with an effective date of January 1, 2024.  As such, there has been much recent mention of this new requirement for businesses to report Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of Treasury. This reporting requirement can be complicated, and if not done correctly, costly.  We encourage business owners to work with their legal advisors to address their reporting requirements. This article will cover the who, why, when, what, and how of this new requirement.

Who needs to comply with this requirement?  “Reporting companies” are generally businesses who have registered to do business with their secretary of state.  This can also include a foreign company that is registered to do business in the United States.  Such businesses may include Corporations, Limited Liability Companies (LLCs), or other legal entities.  If a business meets the criteria and does not qualify for an exemption they need to comply with the CTA and self-report the BOI.  There are several entities that are exempt from filing.  Details on the exemptions can be found on the FinCEN website via the Small Entity Compliance Guide.  FinCEN has estimated that nearly 33 million businesses will be required to comply with the CTA this year.

Why is this now a requirement? The primary reasoning is to make it harder for offenders to misuse US corporations and LLCs to benefit from or hide any unlawful activities using these business structures.  Collecting this data will allow for better monitoring, as well as provide standards for state incorporation practices, and allowing better ability to identify the beneficials owners of such entities.

When is a reporting company required to self-report their BOI?  If your company existed prior to January 1, 2024, you must self-report your BOI to FinCEN by January 1, 2025.

If your company is established on or after January 1, 2024, and before January 1, 2025, you have 90 calendar days to report your BOI from the formation date of your company.  If your company is established on January 1, 2025 or after, you have 30 days to report from the formation of your company.

There is also a requirement for all Reporting Companies to update their filing if there are any changes to any beneficial ownership data and/or reporting company data.  This must be updated within 30 days of such changes.

What information is required to be reported?  Information to be reported includes data on the “Reporting Company” as well as data on the beneficial owners.  Data for the company includes legal name, any trade or dba names, current street address of principal business, the jurisdiction it was formed or registered in, and its tax identification number.

The qualifications of who is a “Beneficial Owner” may be complex depending on the business structure.  Clarification on who is a beneficial owner can be found here.  Data required to be reported for the beneficial owners includes name, date of birth, residential address, identification number from an acceptable identification document, as well as images of such document.

How is the information to be reported?  The Beneficial Ownership Information reporting is done online at BOI E-Filing System.  There are multiple methods to submit the required information, as outlined on the website.

Do not ignore this reporting requirement.  There are stiff fines for failing to report this information.  One who willfully fails to report this information could be subject to civil penalties up to $500 per day.  They may also be subject to criminal penalties, including jail time and a fine up to $10,000.

Detailed information, FAQs, reference materials, and more can be found at https://www.fincen.gov/boi.

Business management and owners will likely need to spend significant time in 2024 to assess these requirements and self-report accordingly.  Snyder Cohn encourages you to start this process now and to work with your legal advisors for assistance.

 

By: Billy Litz and Suzanne Miller