Complying with the New Corporate Transparency Act

 

Back in 2021 Congress passed the Corporate Transparency Act, with the goal of enhancing transparency in corporate ownership in order to reduce money laundering, tax fraud, financing of terrorism, and other illicit financial transactions. The Act, which creates reporting requirements regarding the “beneficial owners” of many companies, went into effect on January 1, 2024. Many business owners are surprised to see how this law can impact their personal privacy.

The following provides an overview of what you need to know. For more information, including brochures, videos, a compliance guide and more, visit www.fincen.gov/boi.

Does the Corporate Transparency Act affect my company?

 

Under the Act, companies that are required to report beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) are called “reporting companies.” Domestic reporting companies are corporations, limited liability companies and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.

There are, however, exceptions, as 23 types of entities are exempt from the beneficial ownership information reporting requirements. The most relevant exception for our members is “large operating company.” Large operating companies are those that employ more than 20 full-time employees in the U.S.; have an operating presence at a physical address in the U.S.; and filed a Federal income tax or information return in the U.S. for the previous year demonstrating more than $5 million in gross receipts or sales, excluding sales from sources outside the U.S., and reported these gross receipts or sales on an applicable IRS form.

Who is a “beneficial owner” of a reporting company?

 

A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company, such as a senior officer, and/or owns or controls at least 25% of the reporting company’s ownership interests.

What information must be reported about the company?

 

A reporting company must report its legal name, trade names or DBAs, street address (not a P.O. box), jurisdiction of formation or registration, and Taxpayer Identification Number.

 

What information must be reported about the beneficial owners?

 

For each individual who is a beneficial owner, a reporting company will have to provide the individual’s name, date of birth and residential address, plus the identifying number and issuing state or jurisdiction from an acceptable identification document such as a passport or U.S. driver’s license and an image of this identification document.

 

How and when do we submit this information?

 

If your reporting company was created or registered prior to January 1, 2024, you have until January 1, 2025, to file your report. Companies created or registered after January 1, 2024, must file the report within 90 calendar days after receiving notice that the company’s creation or registration is effective. This will change to 30 calendar days for companies created or registered after January 1, 2025.

Beneficial ownership information must be reported electronically at www.fincen.gov/boi. There is no fee to submit this information. Note: As of this writing, the reporting function is not yet available.[LC1] 

There is no annual reporting requirement. However, updates or corrections to previously reported beneficial ownership information must be submitted within 30 days.

 

Who will have access to this data?

 

The list of entities that may be able to obtain access to this data from FinCEN includes federal, state, local and tribal officials; certain foreign officials; financial institutions in certain circumstances; and those financial institutions’ regulators.

 

What are the potential penalties for non-compliance?

 

A person who willfully violates the beneficial ownership information reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues, plus criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information or willfully failing to correct or update previously reported beneficial ownership information.

 

If you have any questions about the Corporate Transparerncy Act and if it affects you,  please contact your legal counsel.