What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) requires many corporations, limited liability companies, and other entities operating in the United States to report their beneficial ownership information. Failure to comply can result in severe civil and criminal penalties.
Covered Entities (Reporting Companies) That Must File
The CTA requires the following entities to report their beneficial owners to FinCEN:
- C-Corporations
- S-Corporations
- Limited Liability Companies (LLCs)
- Limited Partnerships (LPs)
- Limited Liability Partnerships (LLPs)
- Business Trusts Created by Filing
- Any Other Entity Created by Filing a Document with Secretary of State or Similar Office
- Foreign Registered Entities
- Non-U.S. entities registered to do business in the United States, such as through a state authority, are considered a “reporting company” covered by the BOI disclosure rules.
Exempt Entities
The following entities are exempt from the CTA’s beneficial ownership reporting requirements and do not need to file:
- Securities reporting issuers
- Governmental authorities
- Banks
- Credit unions
- Depository institution holding companies
- Money services businesses
- Brokers or dealers in securities
- Securities exchanges or clearing agencies
- Other Exchange Act-registered entities
- Investment companies or investment advisers
- Venture capital fund advisers
- Insurance companies
- State-licensed insurance producers
- Commodity Exchange Act-registered entities
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entities assisting tax-exempt entities
- Large operating companies (Companies with over 20 employees and annual gross receipts exceeding $5 million)
- Subsidiaries of certain exempt entities
- Inactive companies
What must be reported?
The following information must be reported to FinCEN by covered entities and beneficial owners:
- Full legal name
- Any trade name or “doing business as” (DBA) name
- Report all trade names or DBAs.
- Complete current U.S. address
- Report the address of the principal place of business in United States, or, if the reporting company’s principal place of business is not in the United States, the primary location in the United States where the company conducts business.
- State, Tribal, or foreign jurisdiction of formation
- For a foreign reporting company only, State or Tribal jurisdiction of first registration
- Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN))
- If a foreign reporting company has not been issued a TIN, report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.
Beneficial Owners
Beneficial owners are individuals who meet certain criteria, including:
- Exercise substantial control over the entity
- Own or control at least 25% of the entity’s ownership interests
Reporting Requirements for Beneficial Owners include:
- Full legal name
- Date of birth
- Complete current address
- Report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address. The address is not required to be in the United States.
- Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
- U.S. passport
- State driver’s license
- Identification document issued by a state, local government, or tribe
- If an individual does not have any of the previous documents, foreign passport
Company Applicants
A company applicant is an individual who plays a key role in the formation or registration of a reporting company, including:
- Files a document that creates or first registers the company
- Directs or controls the filing action
Each reporting company must identify and report at least one company applicant, and at most two.
When do Companies Need to Report?
A reporting company must report its company applicants if it is:
- A domestic reporting company created on or after January 1, 2024
- A foreign reporting company first registered to do business in the United States on or after January 1, 2024
Reporting Requirements for Company Applicants include:
- Full legal name
- Date of birth
- Complete current address
- Report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address. The address is not required to be in the United States.
- Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
- U.S. passport
- State driver’s license
- Identification document issued by a state, local government, or tribe
- If an individual does not have any of the previous documents, foreign passport
When updates are required
The CTA requires companies to update their previously filed beneficial ownership information within 30 calendar days if certain events occur:
- Changes in Ownership/Control
- Reporting companies must provide an updated BOI report if there is a change in:
- Any particular listed that resulted in an existing person being a beneficial owner
- Any particular listed that resulted in an existing beneficial owner no longer being considered one
- This includes situations where an existing beneficial owner’s reported information changes (e.g. name change, new address) or when new individuals acquire or divest beneficial ownership interests.
- The rules also require an update within 30 days after the expiration date of any identification document that was previously submitted for a beneficial owner, such as:
- Driver’s licenses
- Passports
- Other credential used to report a unique identifying number
- Companies must obtain and report the new unexpired document information from the beneficial owner.
Penalties for Non-Compliance
Failing to comply with the CTA beneficial ownership disclosure mandates can trigger substantial financial penalties, potential prison time of up to 2 years for willful violations, and other severe civil and criminal consequences – even asset seizure in egregious cases.
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Source: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
