The Corporate Transparency Act (“CTA”), which became effective January 1, 2024, includes new reporting requirements that require “reporting companies” to disclose certain information regarding their beneficial owner(s) (i.e., the parties who own or control a company) to the United States Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Many entrepreneurs are wondering what their entities' compliance with these requirements entails. If you are one of those entrepreneurs, please contact Frazier Law, PLLC at info@frazierlawpllc.net to schedule a consultation.
1. Why Was The CTA Enacted?
Historically, few U.S. jurisdictions required legal entities to disclose information about their beneficial owners – the individuals who actually control and/or own an entity. The CTA was enacted in response to the lack of such a uniform reporting requirement, and to help combat money laundering, terrorist financing, corruption, tax fraud, and other illegal activities carried out through legal entities existing under U.S. law. FinCEN has issued regulations under the CTA, which can be found at 31 CFR §1010.380, and final rules regarding the CTA, which can be found at: https://www.fincen.gov/boi/Reference-materials.
2. Who Must Comply With the CTA?
Under the CTA, all “reporting companies” will be required to disclose certain information about their beneficial owners to FinCEN. As a general rule, “reporting companies” include any entity that was formed or registered to do business within the U.S. and have documented the formation by filing a document with a secretary of state or a similar office. Importantly, foreign entities that have registered to do business in the U.S. by filing a document with a secretary of state or similar office are also considered a "reporting company."
The CTA does, however, identify certain exempted entities that are not considered “reporting companies,” including certain banks, credit unions, SEC-reporting companies, insurance companies, and public accounting firms. Additionally, the CTA contains a specific exemption for an entity that (a) has more than 20 full-time U.S.-based employees, (b) has filed a U.S. Federal income tax return in the last year that demonstrates more than $5,000,000 in gross receipts or sales, and (c) maintains and operates a physical office in the U.S. Additional information on these exceptions is contained here.
3. When Do The CTA’s Reporting Requirements Become Effective?
FinCEN began accepting Beneficial Ownership Information Reports (“BOIRs”) on January 1, 2024. For regulated “reporting companies” formed prior to January 1, 2024, the deadline to complete the BOIRs is January 1, 2025.
For regulated “reporting companies” formed in 2024, the deadline to complete the BOIRs is calendar 90 days from the date of corporate formation.
For regulated “reporting companies” formed on or after January 1, 2025, the deadline to complete the BOIRs is 30 calendar days from the date of corporate formation.
While at this time there is no quarterly or annual filing requirement, regulated “reporting companies” have an ongoing obligation to keep their BOIRs accurate. Specifically, “reporting companies” have 30 calendar days to amend their BOIRs to correct inaccurate information or to include updated information.
4. What Information is Reported to FinCEN?
The CTA requires that regulated “reporting companies” provide the following information regarding the entity:
full legal name;
trade names or d/b/a names, if any;
address;
jurisdiction of formation or registration; and
federal taxpayer identification number.
The CTA requires that regulated “reporting companies” provide the following information for each “beneficial owner”, defined as an individual who either directly or indirectly (a) exercises substantial control over the reporting company, or (b) owns or controls at least 25% of the reporting company’s ownership interests:
full legal name;
birthdate;
residential address;
identifying number from an approved government document; and
an image of the approved document that contains the identifying number.
5. What Happens If A Regulated “Reporting Company” Violates the CTA?
If a regulated “reporting company” fails to comply with the CTA’s reporting requirements, either by providing false information to FinCEN in the company’s BOIR or by failing to timely file a BOIR, the regulated reporting company can be liable for civil penalties of up to $500 per day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000.
In sum, Frazier Law strongly encourages businesses to determine whether they meet the definition of a regulated “reporting company,” and if so, to determine the steps that must be taken to comply with the CTA. If you would like Frazier Law, PLLC’s assistance with navigating this process, please contact Frazier Law, PLLC at info@frazierlawpllc.net. Additional resources can also be found at: https://www.fincen.gov/boi/small-business-resources.