New Business Reporting Requirement Now in Effect
Beginning on January 1, 2024, US companies have new reporting rules to comply with per the little talked about law enacted January 1, 2021: the Corporate Transparency Act (the “CTA”). Though CTA’s intent is to stop the US from being a haven for “shell” companies that could be used to hide the identity of true investors, it will affect over 32 million companies in 2024 and beyond. The CTA doesn’t only affect privacy rights of companies, it also carries steep penalties for non-compliance. Here are the highlights.
- What is the CTA? The CTA makes it mandatory for certain businesses to report direct and indirect, human, beneficial ownership, control, and service provider information to the Financial Crimes Enforcement Network (“FinCEN”) of the US department of the treasury.
- What businesses does the CTA impact?
More specifically, the CTA impacts businesses encompassed within the CTA’s definition of “reporting company.” A “reporting company” is any entity (corporation, limited liability company, limited partnerships, business trusts, and even non-profit entities) formed or registered to do business in the United States unless one of 23 exemptions applies to the entity. Most of the exemptions are for 501(c) companies, inactive companies with no funds or assets formed before January 1, 2020, and large publicly traded companies (already reporting to the SEC). As a general rule, most companies that do not have more than 20 full-time employees and at least $5 million in gross receipts will be required to report their beneficial owners.
For informational purposes, these are the 23 exemptions currently available:
|Securities reporting issuer
|Money Services Businesses
|Venture Capital Fund Advisor
|Large operating company
|Broker or Dealer in Securities
|Financial market utility
|Subsidiary of certain exempt entities
|Securities Exchange or Clearing Agency
|State-licensed insurance producer
|Pooled investment vehicle
|Other Exchange Act registered entity
|Commodity Exchange Act registered entity
|Depository Institution Holding Company
|Investment Company or Investment Advisor
|Entity assisting a tax-exempt entity
To see if an exception may apply for your company, FinCEN has a small entity compliance guide available with checklists to help you see if an exception applies: Click Here
3. How do I report? You file a Beneficial Ownership information Report (“BOIR”) electronically through the BOI E-Filing System located on
the FinCEN website. Here is a direct link: https://boiefiling.fincen.gov/fileboir. The report can be filed by the business owner. The report
can also be filed by anyone the reporting company authorizes to act on its behalf – such as an employee or a third-party service
provider. Anyone who files will need to provide basic contact information about themselves such as name, email address, and phone
4. Is there a fee to file a BOIR? No.
5. What information is needed to complete the BOIR?
The reporting company will have to provide
• 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 (for example, a U.S. reporting
company’s headquarters), 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 (for example, a foreign reporting company’s U.S.
• Its jurisdiction of formation or registration; and
• Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued
by a foreign jurisdiction and the name of the jurisdiction).
All individuals who have substantial control over the business or who own, directly or indirectly, 25 percent or more of the equity in the
business (i.e. each “beneficial owner”) will need to provide certain personal identifying information (“PII”). Every business will have at least
one person to report, regardless of its ownership structure. For reporting companies formed on or after January 1, 2024, the same PII
must be reported for “company applicants” (i.e. the incorporators, organizers, and any individual who assists or directs the formation filing
with the Secretary of State or equivalent entity).
6. What PII will be reported for each beneficial owner and company applicant? The following PII must be reported and kept current
and accurate with FinCEN by the reporting company on an ongoing basis (except in the case of company applicants who will just need
to report then information initially and will not be required to update their information thereafter):
• Full legal name;
• Date of birth;
• Residential (or sometimes business) physical commercial street address; and
• Image of an acceptable government issued ID (e.g. a US passport or state-issued driver’s license) that includes both an ID number
and the person’s photograph.
Subsequent reports to amend this information, as necessary, will also be required.
7. What is the reported information used for? Beneficial ownership information will be stored in a non-public data base that will be used
by law enforcement (to include federal, state, local, and tribal law enforcement authorities) to streamline investigations. It is seen as a
powerful tool to bypass the “shell game” historically posed by multiple levels of business entity ownership.
8. When do I need to file my initial BOIR? If your business was formed in the US prior to January 1, 2024 or registered to do business in
the US prior to January 1, 2024, then you have until January 1, 2025 to file your BOIR. If you form your business on or after January 1,
2024 but before January 1, 2025, you have 90 calendar days after receiving notice of the company’s creation or registration to file your
initial BOIR. If you form or register your company on or after January 1, 2025, you will have 30 calendar days from actual or public notice
that the company’s creation or registration is effective to file your initial BOIR.
9. What are the penalties for not complying with the CTA reporting requirement? The reporting company is charge $500 per day, up
to $10,000, per violation. Also, there is possible jail time (up to two years) for those failing to timely and properly comply with CTA
requirements. Penalties can be levied for providing false information, failing to provide complete information, or failing to update
information. There are no extensions of time for filing the required form with FinCEN. Similarly, there are no provisions under the
CTA excusing late filing or abatement of penalties for reasonable cause.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.