Beneficial Ownership Reporting Requirements under the Corporate Transparency Act

The Corporate Transparency Act (“CTA”), effective January 1, 2024, was enacted by Congress to strengthen the integrity of the U.S. financial system by combating money laundering, tax fraud, financing of terrorism, and other illicit activities through shell companies.

The CTA requires that, beginning on January 1, 2024, certain entities that are reporting companies under the CTA disclose beneficial ownership information (“BOI”) to the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). 

Companies formed or registered to do business in the US prior to January 1, 2024 are required to complete their reporting obligations by the end of 2024. Companies that were created or registered to do business on or after January 1, 2024, must file their initial BOI shortly after formation (90 days if formed during 2024, or 30 days if formed in 2025).

Reporting Companies 

The CTA imposes reporting obligations on domestic and foreign entities that are registered to do business in the US and do not qualify for an exemption.

The CTA requires a reporting company to report basic information about itself and its “beneficial owners.” The term “beneficial owner” includes any individual who, directly or indirectly, either (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the ownership interests of the reporting company.

The term “substantial control” captures anyone who has authority to make important decisions on behalf of the reporting company.  This includes senior officers (e.g., President, CEO, CFO) and directors, anyone with authority to appoint senior officers or directors, and anyone who has any other substantial control of the company through contractual arrangements, ownership of voting shares, or otherwise.  

Exemptions 

The CTA’s reporting requirements are broadly applicable, and may principally impact small companies. Exemptions from the CTA reporting requirements are available for certain entities. However, many of the exemptions will apply only to large operating companies or to those entities that are already highly regulated, such as (A) large operating companies that have at least 20 full time employees in the U.S., and have filed U.S. federal tax returns reporting more than $5,000,000 in gross receipts or sales in the prior year, (B) government entities, (C) banks and other financial institutions, such as broker-dealers and registered investment companies, registered investment advisers, and insurance companies, (D) accounting firms, (E) tax exempt entities, and (F) public companies.

Submission

BOI reports are to be submitted electronically through FinCEN’s BOI filing system. FinCEN will maintain the reported BOI in a secure nonpublic database accessible only by a limited number of authorized governmental agencies upon request in accordance with appropriate security and confidentiality protocols. 

Updated and Corrected Reports

Reporting companies must update their previously filed BOI reports within 30 days if any required information regarding the reporting company or its beneficial owners changes or following the discovery of any inaccuracies in previously filed reports. CTA reporting companies will need to have processes in place to timely identify and report the CTA’s required information, and to monitor changes to that information for ongoing compliance. 

Penalties for Violation

The CTA stipulates for civil and criminal penalties for violations, including a fine of up to $10,000, imprisonment for up to 2 years, or both, for any person who willfully provides or attempts to provide false or fraudulent BOI or fails to report complete or updated BOI to FinCEN. Penalties may also apply to reporting companies and individuals who cause a reporting company not to report or are senior officers of a reporting company at the time of its failure to fulfill its obligation to accurately report or update BOI. 

We are available to answer any questions you may have regarding the CTA and/or the BOI report and to help you prepare the CTA compliance.