The Corporate Transparency Act (“CTA”) enacted on January 1, 2021 requires all business entities (described below) formed or registered to do business in the United States to report beneficial ownership information (“BOI”) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Failure to report can result in civil and criminal penalties, as set forth below. These reporting requirements cast an intentionally broad net – and many companies will be required to disclose BOI.  The purpose of these reporting requirements is to enable FinCEN, law enforcement, financial institutions, and other authorized users to uncover and combat illegal economic activity (e.g., corruption, money laundering, terrorist financing, tax fraud, etc.).

Which entities are required to report BOI?

The CTA sets forth two types of “reporting companies” – a “domestic reporting company” and a “foreign reporting company.”  A “domestic reporting company” is any corporation, limited liability company, or other entity created by filing a document with the secretary of state or similar office.  A “foreign reporting company” is a corporation, limited liability company, or other entity formed under the laws of a foreign country that is registered to do business in the United States by filing a document with the secretary of state or similar office.

Which entities are exempt from the BOI reporting requirements?

The CTA sets forth 23 exempt entities including: (1) most financial services institutions, including those that already report to the SEC, FDIC, etc.; (2) “large operating companies” with (i) more than 20 full-time employees, (ii) more than $5 million in annual revenue, and (iii) a physical location in the United States; (3) Non-profit organizations, e.g., churches, charities, charitable trusts, etc.; (4) public utility companies; and (5) dormant companies in existence for more than 1 year, not engaged in “active business”, and not owned directly or indirectly by a non-U.S. individual.

What BOI must be reported?   

All entities must report whether the entity is an exempt company or reporting company.  For those reporting entities, each beneficial owner’s (1) name and any alternative names; (2) business address; (3) date of birth; and (4) a unique identifying number (e.g., current driver’s license number or passport number) must be reported.  Once the BOI is provided to FinCEN, the individual will receive a “FinCEN identifier”, which can then be provided to FinCEN in lieu of the BOI already provided.

Who is a “beneficial owner”? 

A “beneficial owner” includes those individuals who, directly or indirectly, through contract, understanding, arrangement, relationship or otherwise, exercise substantial control or own or control at least 25% of the ownership interests in the entity.  Individuals exercising “substantial control” include those (i) serving as senior officers of the reporting company; (ii) who may authorize the appointment or removal of any office or dominate majority of the board of directors (or similar body) of a reporting company; or (iii) with substantial influence over a reporting company’s important matters, e.g., entering or terminating significant contracts, decisions related to significant expenditures or investments of the company, the sale of the company’s principal asset(s), and/or any other form of substantial control.

When must the BOI be reported?

If the reporting company was formed prior to January 1, 2024, BOI must be reported by January 1, 2025.  If the reporting company was formed after January 1, 2024, BOI must be reported within 30 days of the company’s formation.  If a beneficial owner’s information changes, the updated information must be reported within 30 days after the date of the change.  If a reporting company inadvertently reports inaccurate BOI, it must file a corrected report within 30 days after the inaccuracies were discovered, or should have been discovered.

What happens if I don’t comply with the BOI reporting requirements?

Failure to report required information can result in civil penalties of up to $500 for each day the violation continues.  Individuals who willfully provide or attempt to provide fraudulent information may face criminal penalties including a $10,000 fine and possible imprisonment for up to 2 years.  

How is BOI reported?

FinCEN is developing an information technology system to which reports will be submitted beginning January 1, 2024.

What are your next steps?

As this new reporting rule will require all entities to report whether they are an exempt company or reporting company, and then for all reporting companies to report BOI, watch for further information from your primary attorney at Lane & Waterman.  In the meantime, if you have questions regarding this new law, please reach out to your primary attorney for more detailed information on how this might affect your company at (563) 324-3246. The information presented in this article is for general informational purposes and should not be construed or relied upon as legal advice. You should consult with an attorney if specific legal advice or information is desired.