After years of delays, the first stage of the Corporate Transparency Act (CTA) goes into effect on January 1, 2024. It imposes a new federal filing requirement for most corporations and limited liability companies (LLCs) formed in 2024 and later.
The CTA’s purpose is to prevent the use of anonymous shell companies for money laundering, tax evasion, and other illegal purposes. But it applies to honest business owners as well as criminals.
The CTA does not apply to all new businesses. It applies only to entities such as corporations, LLCs, and others formed by filing a document with a state secretary of state or similar official. It doesn’t apply to sole proprietors.
Our firm is sending you this communication to provide you with some general information regarding the new reporting rules as well as initial steps you should take to address the implications of the CTA to your organization.
What entities are subject to the new CTA reporting requirements?
Entities required to comply with the CTA (“Reporting Companies”) include corporations, limited liability companies (LLCs), and other types of companies that are created by a filing with a Secretary of State (“SOS”) or equivalent official.
The rule identifies two types of reporting companies: domestic and foreign.
A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.
Under the rule, and in keeping with the CTA, twenty-three types of entities are exempt from the definition of “reporting company.”
Exemption
The Reporting Rule exempts twenty-three (23) specific types of entities from the reporting requirements, including
- large businesses—businesses with more than 20 full-time employees and $5 million in receipts on their prior-year tax return,
- certain businesses already heavily regulated by the government, such as banks and insurance companies,
- Inactive entity – entity existed on or before January 1, 2020 and not engaged in active business. Entity is not owned by a foreign person and no changes in ownership and no funds sent or received in the preceding twelve (12) month period. We highly recommend to file Articles of dissolution with Secretary of State to properly end the entity’s existence.
- nonprofits, and
- several others.
Who is a beneficial owner of my company?
If your company is a reporting company, your next step is to identify its beneficial owners. A beneficial owner is any individual who, directly or indirectly:
- Exercises substantial control over a reporting company;
- OR
- Owns or controls at least 25 percent of the ownership interests of a reporting company.
An individual might be a beneficial owner through substantial control, ownership interests, or both. Reporting companies are not required to report the reason (i.e., substantial control or ownership interests) that an individual is a beneficial owner.
When do I need to file a report?
- Reports will be accepted starting on January 1, 2024.
- Reporting companies created or registered to do business before January 1, 2024, will have additional time — until January 1, 2025 — to file their initial BOI reports.
- Reporting companies created or registered on or after January 1, 2024, will have 90 days after receiving notice of their company’s creation or registration to file their initial BOI reports.
What happens if my company does not report BOI in the required timeframe?
The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.
Beneficial Ownership Information Reports
When filing BOI reports with FinCEN, the rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document). Additionally, the rule requires that reporting companies created after January 1, 2024, provide the four pieces of information and document image for company applicants.
If an individual provides their four pieces of information to FinCEN directly, the individual may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a BOI report in lieu of the required information about the individual.
What should I do if previously reported information changes?
In addition to filing an initial BOI report, reporting companies must also update and correct information in their previously filed BOI reports. Individuals who obtain FinCEN identifiers must also update and correct information previously reported to FinCEN. The company must file an updated BOI report no later than 30 days after the date on which the change occurred. The same 30-day timeline applies to changes in information submitted by an individual in order to obtain a FinCEN identifier. A reporting company is not required to file an updated report for any changes to previously reported personal information about a company applicant
Please visit the website below for additional information about the Reporting Rule and guidance materials:
Beneficial Ownership Information Reporting | FinCEN.gov
If you have questions, be sure to reach out to us. Our entire team is here to support and guide you.