Morgan C. York Illustrates Effects of Corporate Transparency Act on Business Owners

February 20, 2024

There has been a significant change in federal law that may require your business to report information about its beneficial owners and principals. The Corporate Transparency Act (CTA) became effective on January 1, 2024, and impacts nearly everyone operating a business through a legal entity such as a corporation, limited liability company, limited partnership or other similar entity. The CTA requires certain types of businesses that meet the very broad definition of a “reporting company” to file a beneficial ownership information (BOI) report online with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Who Is Required to File a BOI Report with FinCEN?
The following types of entities are deemed “reporting companies” and are required to file BOI reports, unless an exemption applies:

  1. All US corporations;
  2. All US limited liability companies;
  3. All other US entities that are created by filing a document with a Secretary of State or similar State or Indian tribe office (e.g., limited partnerships, etc.); and
  4. All non-US companies that are registered to do business in any US state or tribal jurisdiction by filing a document with a Secretary of State or similar State or Indian tribe office.

Is My Business Exempt from the Reporting Requirements of the CTA?
While certain types of businesses are exempt from filing BOI reports (e.g., tax-exempt entities, banks and credit unions, large operating companies, inactive companies), the new rules target small businesses. Many exempt businesses are already required to report ownership information to a federal governmental authority, so if you are not currently required to report ownership information to a federal governmental authority, there is a strong likelihood that your business is not exempt from the CTA and you must comply with the new CTA requirements.

Some of our clients may fall within the large operating company or inactive company exemptions. However, both of these exemptions require the satisfaction of incredibly fact-specific criteria. Accordingly, we highly recommend that you consult with your GCT attorney to determine if your business falls within any exemptions.

What Information Must Be Provided to FinCEN?
The BOI report requires you to disclose information about your business’s “Beneficial Owners,” which are generally defined as:

  1. Any individual who (directly or indirectly) owns or controls at least 25% of the ownership interests (including convertible instruments, options or profit interests) of a “reporting company”; and
  2. All individuals who exercise “substantial control” over a “reporting company” (which include individuals with substantial influence over important decisions about a business’s finances and structure) whether or not such person actually has an ownership interest in the “reporting company.”
    a. Senior officers (e.g., a president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as well as individuals with the authority to appoint or remove senior officers and board members.

Additionally, Beneficial Owners must be natural persons. Put differently, if the ownership of your business is held by a trust or another legal entity (e.g., corporation, limited liability company, limited partnership or other similar entity), you must report information about the natural persons who exercise “substantial control” over the trust, or, with respect to another legal entity, the applicable natural persons who qualify directly or indirectly (through intermediary or holding companies) as Beneficial Owners.

For example, a natural person who owns 75% of a holding company that ultimately owns 50% of a “reporting company” is deemed to be a Beneficial Owner of the “reporting company” because that person indirectly owns 37.5% of the “reporting company” (NOTE: the holding company itself may be separately considered a “reporting company” and subject to the same CTA requirements).

What Information Must be Disclosed About Beneficial Owners on the BOI Report?
For each identified Beneficial Owner of a “reporting company,” the BOI report must include each person’s:

  1. Full legal name;
  2. Date of birth;
  3. Residential street address;
  4. Unique ID number (e.g., a non-expired US passport, state driver’s license, or other government-issued ID card); and
  5. An image of the documentation evidencing the unique ID number.

When is a BOI Report Due?

  1. “Reporting companies” formed prior to January 1, 2024, have until January 1, 2025, to file the BOI report.
  2. “Reporting companies” formed?on or after January 1, 2024, have 90 days after formation to file the BOI report.
  3. “Reporting companies” formed on or after January 1, 2025, have 30 days after formation to file the BOI report.

How Do I File a BOI Report?
BOI reports must be filed electronically. FinCEN’s e-filing portal provides 2 methods to submit a BOI report:

  1. File a web-based version of the form and submitting it online; or
  2. Upload a completed PDF version of the BOI report.

Some third-party service providers may also offer the ability to file the BOI report through their software. The person who submits the BOI report will need to provide their name and email address to FinCEN. There is no fee for filing the report.

Am I Required to Update Previously Filed BOI Reports?
Yes. Any time there is a change to previously reported information about the “reporting company” or its Beneficial Owners, an updated BOI report must be filed within 30 days of the change. This includes (without limitation):

  1. A “reporting company” having new or different Beneficial Owners; and
  2. Any Beneficial Owner with updates to previously reported information (e.g., a person moves to a new residence or obtains a new driver’s license or passport number and the unique ID changes).

Given this strict requirement, it is imperative that you implement a system to identify reportable changes and file an updated report with FinCEN in a timely manner.

What Are Penalties for Not Complying with the CTA?
Failing to timely file the initial BOI report or any subsequent updates may result in both civil and criminal penalties. The penalties for willfully failing to file both initial and updated BOI reports are steep –$500 per day that the report is late, which amount will not exceed $10,000. There is also the potential of imprisonment for up to 2 years.

Helpful Resources
Additional information about reporting requirements, including answers to questions such as “is my company required to report beneficial ownership information to FinCEN,” “who is a beneficial owner,” and “when do I need to report my company’s beneficial ownership information” is available on FinCEN’s Beneficial Ownership Information webpage. FinCEN also has a Small Entity Compliance Guide and frequently asked questions to help guide businesses through the reporting requirements.

If you have not requested that your GCT attorney assist you with CTA compliance, it will be assumed that you understand your CTA reporting obligations and will handle your own reporting. If you have any questions about these new reporting rules and how they affect your business, we would be happy to discuss them with you and assist you through the reporting process. For more information, please contact the GCT attorney with whom you work.

Golan Christie Taglia, with 30 years of dedicated service, has consistently delivered successful outcomes while prioritizing top-tier quality and personalized attention for clients. With a diverse clientele that includes entrepreneurial ventures, high-net-worth individuals, middle-market businesses and nonprofit organizations, GCT stands as a strong and trustworthy firm for its clients.

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