**Updated November 30, 2023**

On January 1, 2024, the new federal Corporate Transparency Act (CTA) will take effect. The CTA is a new federal initiative to limit money laundering that will require most companies and their beneficial owners to register with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

The CTA requires FinCEN to collect and maintain a federal database for “beneficial ownership information” (BOI). All entities that are formed or registered to do business in the United States by the filing of a document with a secretary of state or similar office (e.g., corporations, limited liability companies and limited liability partnerships, but usually not trusts) will need to register on the BOI database unless an exemption applies.

The CTA provides 23 different categories of exemptions, which include exemptions for entities that already make substantial public disclosures (such as financial institutions and tax-exempt charities) and for larger companies that meet the following criteria: (1) employ more than 20 people, (2) report revenues of more than $5 million on tax returns and (3) have a physical presence in the United States. If an entity is exempt, no filing will be required. The applicability of any exception will be an ongoing determination. For example, if an entity drops below the 20-employee threshold, then a prompt filing will be required.

Entities that are not exempt from BOI reporting must provide the following information for each “beneficial owner” of a company:

• Full legal name;
• Date of birth;
• Current residential or business address; and
• A unique identifying number from an acceptable identification document (i.e., valid state issued driver’s license number, passport number, social security number).

A “beneficial owner” is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: (1) Exercises substantial control over the entity; or (2) Owns or controls not less than 25% of the ownership interests of the entity. Most “C-Suite” corporate officers (such as, the company’s president, chief executive officer, chief financial officer, chief operating officer or general counsel) will be deemed to possess substantial control over the entity.

For entities formed in or after 2024, at least one “Company Applicant” must also be identified for each entity. A “Company Applicant” includes the individual who controls the formation filing with the applicable Secretary of State or the individual who actually submits the filing.

Persons and entities that violate the CTA's reporting requirements by providing false information or by not reporting at all may be subject to both civil penalties of $500 for each day the violation continues and may be criminally fined not more than $10,000 and imprisoned for not more than two years.

All currently existing entities have until the end of 2024 to submit a BOI report to FinCEN. For entities that are formed in 2024, the initial report must be filed within 90 days of entity formation. For new and existing entities, if there are changes in reported beneficial ownership information, the entity must file an updated report to FinCEN no later than 30 days after the date of the change.

With the impending 2024 deadlines, it is important to understand how the CTA and BOI reporting will impact your entity.

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