The Corporate Transparency Act (CTA) requires many companies to submit details on their “beneficial ownership” to the Financial Crimes Enforcement Network (FinCEN) effective January 1, 2024.
The CTA, passed by Congress in 2020, requires “reporting companies” to file Beneficial Ownership Interest Reports (“BOI Reports”) to strengthen FinCEN’s anti-money laundering efforts. A “reporting company” is defined as a corporation, limited liability company, or similar entity created through a filing with an appropriate State or Tribal agency. Any non-US company which does business in the US by filing with the appropriate State or Tribal agency is also a reporting company.
There are several exemptions to the reporting requirements for regulated entities, including public companies, certain financial institutions, and registered investment advisors. There is also an exemption for “large operating companies”, which is defined as an entity which (1) employs more than 20 US full time employees, (2) reported more than $5 million in sales on a federal tax return in the previous year, and (3) operates at a physical office in the US.
BOI Reports include information on (1) the company applicant or applicants, i.e., the individual preparing and filing the document, and (2) the beneficial owner or owners of the entity. A beneficial owner is any individual who, directly or indirectly (1) owns at least 25% of the company or (2) exercises substantial control over the company. Common situations where an individual exercises substantial control could include (1) membership on a board of directors, (2) holding a senior leadership position, or (3) controlling a significant portion of voting rights.
BOI Reports require the reporting company’s name, address, and EIN or other tax identification number. For the company applicants and beneficial owners, the BOI Report contains name, date of birth, address, and identification number from a government identification such as a driver’s license or passport along with a photo of that government identification. FinCEN has stated that this information will not be available to the public and will only be available to authorized government agencies for national security, intelligence, and law enforcement purposes.
BOI Reports are due by January 1, 2025, for reporting companies created prior to January 1, 2024. Reporting companies organized during 2024 have 90 days from their registration to report. Beginning January 1, 2025, all new entities are required to report within 30 days of formation.
The potential penalties for failing to provide information or willingly providing false information are steep, with civil penalties of $500 per day and criminal penalties of up to two years in prison. Visit FinCEN’s BOI Homepage and review the FAQs to learn more about the how this applies to your organization and to file your BOI Report if required.
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