CORPORATE TRANSPARENCY ACT REPORTING REQUIREMENTS

On January 1, 2024, the Corporate Transparency Act (“CTA”) came into effect imposing federal reporting requirements on many small businesses. The CTA was passed by Congress in 2021 to enhance transparency of business structures and ownership in an effort to help the government combat money laundering, foreign interference, fraud, and other illegal activities. The CTA requires certain small businesses to file a “beneficial ownership information” (“BOI”) report with the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) containing, among other things, personal identifying information about the company’s beneficial owners. FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain a company’s reported BOI for authorized activities related to national security, intelligence, and law enforcement.

What Companies are Subject to the CTA’s BOI Reporting Requirements?

The CTA imposes the BOI reporting requirement on domestic and foreign “reporting companies.” The CTA broadly defines a “domestic reporting company” as any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe.[1] Similarly, the CTA defines a “foreign reporting company” as a corporation, limited liability company, or other similar entity that was formed under the laws of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.[2]

• The CTA exempts twenty-three (23) types of entities from the BOI reporting requirement:[3]

1. Securities reporting issuers;
2. Governmental authority;
3. Banks;
4. Credit unions;
5. Depository institution holding companies;
6. Money services businesses;
7. Broker or dealer in securities;
8. Securities exchange or clearing agencies;
9. Other Exchange Act registered entities;
10. Investment company or investment advisers;
11. Venture capital fund advisers;
12. Insurance companies;
13. State-licensed insurance providers;
14. Commodity Exchange Act registered entities;
15. Accounting firms;
16. Public utility;
17. Financial market utility;
18. Pooled investment vehicles;
19. Tax-exempt entities;
20. Entities assisting a tax-exempt entity;
21. Large operating companies;
    • Employs more than twenty (20) full time employees in the United States;
    • Has an operating presence at a physical office within the United States; and
    • Has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales on the entity’s IRS Form 1120 or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles

22. Subsidiary of certain exempt entities; and
23. Inactive entities.

Who is a Beneficial Owner?

The CTA requires reporting companies to provide information about its “beneficial owners.” The CTA defines a beneficial owner as any individual who, directly or indirectly: (1) owns or controls at least 25 percent of the ownership interests of a reporting company; or (2) exercises substantial control over a reporting company.[4]

• Any of the following may be considered an ownership interest: equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.
• An individual exercises substantial control over a reporting company if the individual meets any of the following four general criteria:[5]

1. 1. The individual is a senior officer, which includes the following positions:
      • President;
      • Chief Financial Officer;
      • General Counsel;
      • Chief Executive Officer;
      • Chief Operating Officer; or
      • Any other officer, regardless of official title, who performs a similar function as the previously named officers.

1. 2. The individual has authority to appoint or remove senior officers or a majority of directors of the reporting company;
   3. The individual directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:
      • The nature, scope, and attributes of the business of the reporting company, including the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
      • The reorganization, dissolution, or merger of the reporting company;
      • Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
      • The selection or termination of business lines or ventures, or geographic focus, of the reporting company;
      • Compensation schemes and incentive programs for senior officers;
      • The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts; or
      • Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures.

1. 4. The individual has any other form of substantial control over the reporting company.

• When an individual who would otherwise be a beneficial owner of a reporting company qualifies for one of the following five exceptions, the reporting company does not have to report that individual as a beneficial owner in its BOI report to FinCEN:[6]

1. 1. The individual is a minor child, as defined under the law of the State or Indian tribe in which the domestic reporting company is created or the foreign reporting company is first registered;
   2. The individual merely acts on behalf of an actual beneficial owner as the beneficial owner’s nominee, intermediary, custodian, or agent;
   3. The individual is an employee of the reporting company and meets the following three criteria:
      • The individual is an employee of the reporting company, when applying the meaning of “employee” provided in 26 CFR § 54.4980H-1(a)(15);
      • The individual’s substantial control over, or economic benefits from, the reporting company are derived solely from the employment status of the individual as an employee; and
      • The individual is not a senior officer of the reporting company.
   4. The individual’s only interest in the reporting company is a future interest through a right of inheritance, such as through a will providing a future interest in a company;
   5. The individual is a creditor of the reporting company.

• If an individual in a reporting company meets any of the previous criteria and does not qualify for any of the exceptions listed, information about that individual must be reported to FinCEN in the reporting company’s BOI report.

What is Required of Reporting Companies?

Reporting companies created or registered prior to January 1, 2024, will have until January 1, 2025, to file a Beneficial Ownership Information Report with FinCEN.[7] Reporting companies created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN. To file a Beneficial Ownership Information Report, a reporting company must do so via FinCEN’s E-Filing website.[8]

A reporting company must report the following:[9]

• Full legal name;
• Any trade name or “doing business as” (DBA) name;
• Complete current U.S. address;
• Jurisdiction of formation;
• For a foreign reporting company only, state or tribal jurisdiction of first registration; and
• Internal Revenue Service Taxpayer Identification Number.

A reporting company must provide the following information regarding each of its beneficial owners:[10]

• Full legal name;
• Date of birth;
• Complete current address;
• Unique identifying number and issuing jurisdiction from, and image, of one of the following non-expired documents:
  1. U.S. Passport
  2. State driver’s license; or
  3. Identification document issued by a state.

Penalties for Failure to File Report

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.[11]

[1] 31 U.S.C. § 5336(a)(11)(A)(i).

[2] 31 U.S.C. § 5336(a)(11)(A)(ii).

[3] 31 U.S.C. § 5336(a)(11)(B). FinCEN has published a small business compliance guide that provides further detail on the criteria for each of these exemptions, which can be accessed at: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf.

[4] 31 U.S.C. § 5336(a)(3).

[5] 31 C.F.R. § 1010.380(d)(1).

[6] 31 C.F.R. § 1010.380(d)(3).

[7] 31 C.F.R. § 1010.380(a)(1)(iii).

[8] https://boiefiling.fincen.gov.

[9] 31 C.F.R. § 1010.380(b)(1)(i).

[10] 31 C.F.R. § 1010.380(b)(1)(ii).

[11] 31 U.S.C. § 5336(h).