A Guide to Understanding the Corporate Transparency Act 

The Corporate Transparency Act (“CTA”), enacted in 2021 and scheduled to effect on January 1, 2024, is aimed at enhancing transparency in business structures and ownership. Its primary goal is to combat illicit activities such as money laundering and tax fraud. This article provides an overview of the CTA and its implications for your businesses. 

The CTA’s Purpose 

The CTA is designed to provide law enforcement with beneficial ownership information (BOI) to detect, prevent, and punish terrorism, money laundering, and other misconduct through business entities. The CTA establishes federal legislation for the collection of BOI of Reporting Companies, protecting vital United States national security interests, safeguarding interstate and foreign commerce, and bringing the United States into compliance with international anti-money laundering and countering the financing of terrorism standards. 

Who is Affected by the CTA? 

The CTA primarily targets smaller businesses. The CTA requires a reporting company (“Reporting Company”) to identify and document any person who holds a 25% or greater ownership interest or who exercises substantial control over the company. 

Reporting Companies 

Reporting Companies include domestic and foreign business entities. A Domestic Reporting Company is a corporation, LLC, LLP, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of any state in the United States 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.  However, not all business entities will be considered Reporting Companies.  The CTA exempts 23 specific types of entities from the reporting requirements. An entity that qualifies for any of these exemptions is not required to submit a BOI report. 

Beneficial Owners 

The CTA defines a Beneficial Owner as any individual who, directly or indirectly, owns or controls at least 25% of a Reporting Company, or has substantial control over the 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 why an individual is a Beneficial Owner. 

A Reporting Company can have multiple Beneficial Owners. For example, a Reporting Company could have one Beneficial Owner who exercises substantial control over the Reporting Company, such as a manager of an LLC, and a few other Beneficial Owners who own or control at least 25% of the ownership interests of the Reporting Company.  There is no maximum number of Beneficial Owners who must be reported. 

An individual can exercise substantial control over a Reporting Company in four different ways:  

• The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function). 
• The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the Reporting Company. 
• The individual is an important decision-maker for the Reporting Company.  
• The individual has any other form of substantial control over the Reporting Company as explained further in FinCEN’s Small Entity Compliance Guide 

In addition to disclosing its Beneficial Owners, any Reporting Company created or registered on or after January 1, 2024, will need to report up to two Company Applicants.  A Company Applicant is: 

• The individual who directly files the document that creates or registers the company; and 
• If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing. 

What Needs to be Reported? 

A Reporting Company must submit a BOI report.  In the BOI report, a Reporting Company must report: 

• Its legal name; 
• Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names; 
• The current street address of its principal place of business if that address is in the United States, or, for Reporting Companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States; 
• Its jurisdiction of formation or registration; and 
• Its Taxpayer Identification Number. 

For each individual who is a Beneficial Owner, a Reporting Company will have to provide the following information about the Beneficial Owner: 

• The individual’s name; 
• Date of birth; 
• Address; and 
• An identifying number from an acceptable identification document, such as a passport or U.S. driver’s license, and a copy of the document. 

For each individual who is a Company Applicant, a Reporting Company will have to provide the following information about the Company Applicant: 

• The individual’s name; 
• Date of birth; 
• Address; and 
• An identifying number from an acceptable identification document, such as a passport or U.S. driver’s license, and a copy of the document. 

Implementation and Compliance 

Information must filed electronically through FinCEN’s secure online portal.   

Anyone whom the Reporting Company authorizes to act on its behalf—such as an employee, owner, or third-party service provider—may file a BOI report on the Reporting Company’s behalf. When submitting the BOI report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number. 

When does a Reporting Company need to file a BOI Report? 

• BOI 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, and before January 1, 2025, have 90 calendar days after receiving actual or public notice that the company’s creation or registration is effective to file their initial BOI reports.  
• Reporting Companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports. 

 Updates and Corrections 

If there is any change to the information submitted about a Reporting Company or its Beneficial Owners in a BOI report, the Reporting Company must file an updated BOI report no later than 30 days after the date of the change.  Implicit in this obligation to file an updated BOI report is that it only applies to Reporting Companies that have already filed a BOI report.  Thus, companies who are exempt from filing a BOI report or have not yet met the criteria for doing so are not required to file an updated BOI. 

The following are examples of the types of changes that would require an updated beneficial ownership information report: 

• Any change to the information reported for the Reporting Company, such as a new business name. 
• A change in Beneficial Owners, such as a new CEO, or a sale that changes who meets the ownership interest threshold of 25%. 
• Any change to a Beneficial Owner’s name, address, or unique identifying number previously provided to FinCEN, e.g., a passport renewal, if the individual provided their passport as the identification document. 

However, a Reporting Company is not required to file an updated BOI report for any changes to previously reported information about a Company Applicant. 

If a BOI report is inaccurate, a Reporting Company must correct it no later than 30 days after the date it became aware of the inaccuracy or had reason to know of the inaccuracy. This duty to correct includes correcting any inaccuracy in the required information provided about the Reporting Company, its Beneficial Owners, or its Company Applicants. 

How does a Reporting Company file a BOI Report? 

FinCEN began accepting beneficial ownership information reports on January 1, 2024.  Reporting Companies must file their initial, updated, and corrective BOI reports electronically through a secure filing system available via FinCEN’s website.  Filers can choose to either prepare the entire report online or download a pdf form to complete on a computer and upload to the site. 

A BOI report can be submitted by anyone whom the Reporting Company authorizes to act on its behalf, such as an employee, owner, or third-party service provider. When submitting the BOI report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number. 

What are the Penalties for Non-Compliance? 

Failing to comply with the CTA can lead to significant civil penalties, including fines of up to $500 per day.  Additionally, providing false or misleading information is a criminal offense with criminal penalties of up to $10,000 and two years imprisonment.  Both individuals and corporate entities can be held liable for willful violations. This can include not only an individual who files false information with FinCEN, but also anyone who willfully provides the filer with false information to report.   

FINCEN Identifier 

A Beneficial Owner or Company Applicant may obtain a FinCEN identifier.  If so, then Reporting Companies may report the FinCEN identifier of that individual in place of that individual’s otherwise required personal information on a BOI report.  Individuals can request a FinCEN identifier by completing an online form. Individuals will need to provide their full legal name, date of birth, address, unique identifying number and issuing jurisdiction from an acceptable identification document, and an image of the identification document. After an individual submits this information, the individual will immediately receive a FinCEN identifier unique to that individual.   

As with BOI reports, individuals must update or correct information through the FinCEN identifier application that is also used to request a FinCEN identifier. Individuals must report any change to the information they submitted to obtain a FinCEN identifier no later than 30 days after the date on which the change occurred.  If there is any inaccuracy in this information, an individual must correct the information no later than 30 days after the date the individual became aware of the inaccuracy or had reason to know of it.  

What should you do now? 

• Assess your compliance: Determine if the CTA applies to your company and identify your Beneficial Owners. 
• Implement procedures: Establish a process for collecting and verifying beneficial ownership information. 
• Update policies: Review and update your company policies to reflect the CTA requirements. 
• Seek legal guidance: Consult with your lawyer to ensure you are meeting all your legal obligations and understand any potential issues specific to your business. 

The CTA may seem daunting, but with proper preparation and guidance, you can navigate it smoothly.   FINCEN’s BOI website provides guidance and resources to understand the CTA, including an FAQ and helpful videos.  Remember, our law firm is here to help. Contact us today to discuss your specific needs and ensure your company is compliant with the CTA.