Michele Carter, JD Li, Ramesh King

November 17, 2023

Update: FinCEN’s website indicates that there have been recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA. FinCEN does not send unsolicited emails or requests. Please take care not to provide any confidential information, click on links, or scan QR codes from emails or sources that are unfamiliar to you.

In an effort to combat financial crimes, money laundering, and corruption, the Corporate Transparency Act (CTA) was enacted by Congress on January 1, 2021. This significant piece of legislation brings a new level of transparency to businesses across all industries, especially those that are privately owned.

The CTA mandates that, starting January 1, 2024, privately owned corporations, LLCs, partnerships, and other legal entities formed by filing with a Secretary of State must file a Beneficial Ownership Information Report (BOI Report) with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), unless it qualifies for an exception. Foreign entities registered to do business in the U.S. by filing with a Secretary of State are also required to file a BOI Report unless an exception applies. This report requires businesses to disclose information about their individual beneficial owners or those individuals who exercise “substantial control” over the company or own at least 25% of the entity.  Company applicant information is also required for companies formed on or after January 1, 2024.

The reporting process will take place through an online portal called BOSS (Beneficial Ownership Secure System). The required information for each beneficial owner includes their full legal name, date of birth, business or residential address, and a scanned copy of a passport or state driver’s license. In addition, the reporting companies must disclose their legal name, any trade name or “dba” name, street address, state of formation, and Taxpayer Identification Number.

The CTA implementation timeline specifies that pre-existing companies (formed before January 1, 2024) have until January 1, 2025 to report their current beneficial owners. Companies formed during 2024 must file within 90 days of formation, while companies formed on or after January 1, 2025 must report their beneficial owners within 30 days of formation. The BOI Report is a one-time filing requirement, however if there are any changes to the 25% ownership or substantial control of an entity, then the BOI Report must be updated within 30 days of ownership change.

While the CTA has a broad scope, certain exemptions are in place. The CTA excludes 23 categories of entities, mainly because they are already subject to other federal regulations. These exempted entities include, but are not limited to, investment companies, investment advisors, venture capital fund advisors, pooled investment vehicles, banks, credit unions, insurance companies, tax-exempt entities, and "large operating companies," which are defined as companies with over 20 full-time employees in the U.S., a physical office in the U.S., and a previous year's federal income tax return reporting more than $5 million in gross receipts or sales for the previous year. Subsidiaries of an exempt entity may also be exempt.

Non-compliance with the CTA can lead to significant penalties. If a person willfully provides false or fraudulent information or fails to report complete or updated beneficial ownership information, they may face a civil penalty of up to $500 per day that the violation continues, a criminal penalty of up to $10,000, and potentially up to two years in prison.

As the deadline for compliance with the CTA draws closer, businesses should work with their attorney to identify reporting companies and determine if an exception applies. If reporting is required, businesses should continue to work with their attorney to identify beneficial owners and those with substantial control who are required to be reported, and file the reports in a timely manner. This proactive approach will help navigate the changing regulatory landscape and avoid costly penalties for non-compliance.

For further information, please see the FinCEN BOI website which contains FAQs, reference materials, and a helpful Small Entity Compliance Guide.

The information provided here is intended for informational purposes only and should not be considered a substitute for professional tax, legal, or accounting advice. Before undertaking any transaction, it is advisable to consult with your own tax, legal, and accounting advisors.