If you are operating a small business and have not educated yourself about the Corporate Transparency Act (“CTA”) requirements that became effective on January 1, 2024, now would be a good time to pay attention. Knowing the intricacies of the CTA and its potential impact is essential for small businesses in order to avoid incurring civil or criminal penalties.

Purpose of the Corporate Transparency Act

The CTA is intended to provide law enforcement officials with details about the ownership of small businesses for the purpose of detecting, preventing, and punishing terrorism, money laundering, and other misconduct via the use of business entities. The CTA requires certain business entities, known as “reporting companies,” to file information about the ownership of their business (their “Beneficial Owners”) with the Financial Crimes Information Network (“FinCEN”) of the United States Department of Treasury, known as a Beneficial Ownership Information (“BOI”) Report, unless they fall within an exemption as outlined below. Reporting companies include both domestic and foreign entities. Domestic reporting companies include corporations, limited liability companies, or any other similar entities created by filing a document with a secretary of state or any similar office under the law of a state. Foreign reporting companies include privately formed entities and any other similar entities created under the law of a foreign country that are registered to do business in the United States. The information provided in a BOI Report does not become publicly available. Still, FinCEN is authorized to disclose these details to law enforcement agencies, prosecutors, or judges and, with consent of the reporting company, to financial institutions and their regulators.

Who is a Beneficial Owner?

A Beneficial Owner of a reporting company is an individual who, directly or indirectly, (1) exercises substantial control over the reporting company or (2) owns or controls at least 25% of the equity interests of the reporting company. The term “substantial control” describes individuals who (a) serve as a senior officer of the reporting company, (b) have appointment or removal authority over the senior officers and board of directors, (c) can direct, determine, or have substantial influence over important decisions within the reporting company, or (d) have any other type of substantial control over the reporting company. The term Beneficial Owner does not include minor children, persons serving as agents, employees who are not senior officers, heirs, and creditors who own less than 25% of the equity interests of the reporting company.

Required Details and Deadlines

The details reporting companies need to include in the BOI Report vary based on the businesses’ incorporation date. Businesses incorporated after January 1, 2024, but before January 1, 2025, must provide information regarding the business, its Beneficial Owners, and its company applicants, including names, addresses, birthdays, and identification numbers such as a license or passport number and the jurisdiction of the documents within 90 days after the formation of the reporting company. Businesses incorporated on or after January 1, 2025, must provide the same details and have 30 days from the date of incorporation to file the BOI Report. Businesses incorporated before January 1, 2024, are not required to provide information regarding company applicants, but they must provide the other required details on or before January 1, 2025. Reporting companies must also provide their legal name and trade names, their current United States street address, their taxpayer identification number, and the jurisdiction in which they were incorporated.

Required Updates to BOI Report

In addition to the required initial filing, reporting companies must update the original filing if a Beneficial Owner changes their address, legally changes their name, or obtains a new driver’s license. Operational changes or a new delegation of authority could also trigger a requirement to update the filing.

Exemptions From Filing a BOI Report

There are 23 categories of entities that are exempt from filing a BOI Report, most of which are for entities that are already subject to substantial federal and state regulation, such as publicly traded companies, entities that file reports with the Securities and Exchange Commission, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, and public accounting firms. There is also an exemption for “large operating companies,” defined as entities that (1) employ more than 20 full-time employees in the United States, (2) have an operating presence at a physical office within the United States, and (3) have filed a federal income tax return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.   

The reporting forms are available on FinCEN’s website: https://boiefiling.fincen.gov. No fees are incurred for the filing of BOI Reports.