by Newburg CPA staff writer
The Corporate Transparency Act (CTA), which was enacted by Congress in 2021 as part of the Anti-Money Laundering Act of 2020, will establish a national database of Beneficial Ownership Information (BOI) to crack down on financial crimes such as money laundering, terrorist financing, or concealment of assets in the US through shell companies. Starting January 1, 2024, the majority of US small businesses, including any existing, amended, or new corporation, Limited Liability Company, will be subject to new reporting requirements under the CTA and must submit beneficial ownership information with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) on their portal.
CTA is sweeping and will impact nearly every US small business. Compliance will require reporting from any individual who is a “beneficial owner” (anyone having at least 25% ownership or control of the entity) or has “substantial control” of a company. There are many ways by which someone may fall into the category of beneficial owner and, therefore, be required to report. To prepare, companies should begin developing procedures to identify beneficial owners and track any changes in ownership to ensure compliance with reporting requirements.
Who is Required to File BOI Report?
Under the new reporting requirements, any domestic or foreign entity filing with a secretary of state must submit a BOI report in the FinCEN portal. This includes any corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or a similar office to create your company or, for foreign companies, registered to do business in the United States (note that certain types of entities are exempt – see below).
A reporting company will need to provide the following information: legal name and any trade name or DBA; address; the jurisdiction in which it was formed or first registered, depending on whether it’s a U.S. or foreign company; and Taxpayer Identification Number (TIN).
EXEMPTIONS – There are 23 types of entities exempt from the BOI reporting requirements. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain “large operating” companies. “Large operating” companies are defined as entities with more than 20 full-time US based employees that also have more than $5 million in US source sales or gross receipts.
The following list summarizes the 23 exemptions:
- Securities reporting issuer
- Governmental authority
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company (i.e. employs more than 20 full-time employees, greater than $5M gross receipts, etc.)
- Subsidiary of certain exempt entities
- Inactive entity
Companies should carefully review the qualifying criteria before concluding that they are exempt from the beneficial ownership information reporting requirements.
Who is a Beneficial Owner of My Company?
To comply with new requirements, reporting companies will need to identify themselves and anyone who is considered a “beneficial owner” (those having at least 25% ownership or control of the entity) or has substantial control of a company. Those with substantial control include, but may not be limited to:
- Senior officers
- Anyone with authority to appoint or remove any senior officers or a majority of the board of directors
- Any individual with influence on important decisions made by the reporting company
- Anyone with any form of substantial control over the reporting company, for example, a trustee of a trust
Once a reporting company has identified its beneficial owners, they must report the following information about each individual: legal name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (such as a driver’s license, state-issued ID or passport) along with an image of the document.
Timing of New Reporting Requirements
FinCEN will begin accepting beneficial ownership information reports from reporting companies that are not exempt on January 1, 2024.
- New reporting companies – Companies founded or registered after January 1, 2024 will have 30 days after obtaining notice of their creation or registration to file their initial reports.
- Existing reporting companies – Companies created or registered to do business in the United States before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports. After their initial filing, companies will have 30 days to report any changes to the information and must correct inaccurate information in previously filed reports within 30 days if they become aware of any inaccurate information in previous filings.
The BOI report is not yet available. Once available, information will be posted about the report and the process to file the report electronically through a secure filing system via FinCEN’s beneficial ownership information webpage. There will be no fee for submitting your beneficial ownership information report to FinCEN.
Penalties for Violating Reporting Requirements
Requisite companies failing to report required or found to be providing false beneficial ownership information will be subject to a civil or criminal penalties, including civil penalties of up to $500 per day that a violation continues, fines of up to $10,000, and/or imprisonment for a period of up to two years.
To avoid these consequences, companies should prepare proactively by determining who qualifies for these disclosures and compiling information as soon as possible. This process may be lengthy and complex.
For further information about Beneficial Ownership Information (BOI), below are some resources:
- Beneficial Ownership Information Reporting Rule, available at www.fincen.gov/boi
- BOI Frequently Asked Questions https://www.fincen.gov/boi-faqs
- FinCEN’s Small Entity Compliance Guide
Please reach out to your Newburg CPA team or contact us at email@example.com for more information or with any questions about how the Corporate Transparency Act (CTA) may impact you and your organization.