Action Required: CTA Requires Beneficial Owner Reporting
The Corporate Transparency Act (“CTA”), effective January 1, 2024, requires certain businesses (“reporting companies”) to report beneficial ownership information (“BOI”) to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of Treasury. Enacted by Congress in 2021 as part of the National Defense Authorization Act for 2021, the CTA is intended to combat such illicit activity as tax fraud, money laundering, and terrorist financing by requiring businesses formed or operating in the United States to report their beneficial owners.
Reporting Requirements
A. Who is required to file a BOI Report?
i. Reporting Companies. All “reporting companies” are required to comply with FinCEN’s BOI reporting requirements.
A “reporting company” is an entity that is either:
(a) formed by filing a document with a secretary of state or similar office in the United States or Indian tribe, or
(b) registered to do business in any U.S. State or tribal jurisdiction, and
(c) does not otherwise qualify for an exemption.
An entity that has not registered with a state because there is no registration requirements for that entity type (such as a general partnership) is not considered a reporting company.
ii. Exempt Entities. Several entity types are exempt from beneficial ownership reporting requirements, including:
Securities reporting issuers, which issue securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l); or are required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d))
Governmental authorities;
Banks;
Credit unions;
Bank holding companies;
Money services businesses;
Brokers or dealers in securities;
Securities exchange or clearing agency;
Other Exchange Act registered entity;
Investment companies or investment advisers;
Venture capital fund advisers;
Insurance companies;
State-licensed insurance producer;
Commodity Exchange Act registered entity;
Accounting Firm;
Public utility;
Financial market utility;
Pooled investment vehicle;
Tax exempt entities;
Entity assisting a tax-exempt entity;
Large Operating Companies – i.e., a company that:
Employs more than 20 full time employees in the U.S.;
Maintains an operating presence at a physical office within the U.S.; and
Filed a federal tax return (or information return) for the prior year for more than $5,000,000.00 of gross receipts or sales.
Subsidiary of certain exempt entities; and
Certain inactive entities in existence on or before January 1, 2020.
B. What must be reported?
i. Initial Report. In its initial report, a reporting company must provide the following information to FinCEN:
For the Reporting Company:
Legal entity name
Any trade name or ‘‘doing business as’’ name
Current address
The state or tribal jurisdiction of formation, including, for a foreign company, the jurisdiction where the company first registers
IRS taxpayer identification number (TIN) (including an EIN of the reporting company), or where a foreign company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction, identifying the jurisdiction
“Beneficial Owners”
“Company Applicant”
For each Beneficial Owner and Company Applicant:
Full legal name
Date of birth
Current address
Identifying number from a non-expired:
Passport
Identification card issued by state, local government or Indian tribe, or
Driver’s license
ii. Updated Reports. If there is a change with respect to any previously submitted information (including information reported for any particular beneficial owner, changes by reason of death, or a child attaining the age of majority with respect to a parent/legal guardian), the reporting company must submit an updated report within 30 calendar days after the date of the change. If the update relates to the death of a beneficial owner, the 30-day period begins when the estate is settled not the date of the death. If the update relates to a minor child attaining the age of majority, the 30-day period begins on the date when the age of majority is reached.
iii. Corrections. A company may correct a previously filed inaccurate BOI report within 30 days of the date the company discovers, or has reason to know, of the error. To avoid penalties detailed below in Section F, corrections should be filed within 90 days of the inaccurate report’s filing.
C. Beneficial Owners Determinations. A beneficial owner of a reporting company is an individual who, directly or indirectly exercises “substantial control” over an entity, or owns or controls, directly or indirectly, at least 25% of the entity’s “ownership interests.”
i. Substantial Control. An individual exercises substantial control over a reporting company if the individual:
serves as a senior officer;
has authority to appoint or remove any senior officer or a majority of directors (or similar body) of the reporting company;
directs, determines or has substantial influence over important decisions; or
has any other form of substantial control over the reporting company.
An individual may also directly or indirectly exercise substantial control over a reporting company through:
board representation;
ownership or control of a majority of voting rights;
rights associated with any financing arrangement or interest in a company;
control over an intermediary entity that separately exercises substantial control over the reporting company;
arrangements or financial or business relationships; or
any other contract, arrangement, understanding, or relationship.
ii. Ownership Interests. “Ownership interests” can include equity, stock, capital, profits interests, puts, calls, and convertible instruments. The total ownership interest the individual controls, directly or indirectly is calculated as a percentage of the total outstanding ownership interests of the company. A beneficial owner does not include:
a minor child;
an individual acting as a nominee or agent;
an employee, provided the person is not a senior officer;
an individual whose only interest is a future interest through inheritance; or
a creditor.
D. Company Applicant Determinations. A company applicant refers to the person who files, or the person primarily responsible for directing the filing of (such as an attorney or a paralegal) the document creating the entity or registers the foreign entity to conduct business in any U.S. state or tribal jurisdiction. Company applicant information must be reported for any reporting company created or first registered to do business in the United States on or after January 1, 2024. An entity created or registered before January 1, 2024, need not report information regarding its Company Applicant.
E. When must a BOI report be filed?
An entity formed or first registered to do business in the U.S. before January 1, 2024, must file its initial report by January 1, 2025.
An entity created or first registered to do business in the U.S. between January 1, 2024 and December 31, 2024, must file within 90 days of formation or registration.
An entity created or first registered to do business in the U.S. on or after January 1, 2025, must file its initial report within 30 days of the entity’s formation.
F. How to report. Reporting companies are required to submit reports to FinCEN using the form and manner prescribed by FinCEN.
G. Penalties for failing to report or falsely reporting. Willfully providing, or attempting to provide, false or fraudulent BOI, or willfully failing to report, complete, or updated a BOI may result in penalties, including fines up $500 per day per day, and criminal penalties up to $10,000, or two-years’ imprisonment, or both.