As of January 1, 2024, many companies and small business entities are now required to file reports disclosing information about the individuals who directly or indirectly own or control them.

What is the Corporate Transparency Act?

Enacted in 2021, the Corporate Transparency Act (CTA) aims to combat money laundering, terrorist financing, and other illicit activities by increasing transparency around business ownership.  The CTA mandates that certain business entities disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) with the intent of enhancing national security and reducing financial crime by creating a database that helps law enforcement agencies identify and track the real individuals who own and control businesses. 

When is the Deadline for Filing a BOI Report?

FInCEN began accepting reports on January 1, 2024.  The deadline for compliance with the rule, for entities created before January 1, 2024, is December 31, 2024.  BOI information for an entity created after January 1, 2024 must be filed within 90 calendar days of receipt of actual or public notice that the entity’s creation or registration is effective.  If an entity was created or registered before January 1, 2024, but wound up its affairs and ceased conducting business after that date, the entity is still required to report its beneficial ownership information to FinCEN.  Similarly, if a company was created or registered after January 1, 2024, and subsequently ceased to exist before its initial BOI report was due, it is still required to report its beneficial ownership information to FinCEN.

Going forward, BOI information for an entity created or registered on or after January 1, 2025, must be filed within 30 calendar days of receipt of actual or public notice that the entity’s creation or registration is effective. 

There is no annual reporting requirement.  Reporting companies must file an initial BOI report and updated or corrected BOI reports, as needed, within 30 days of the change in beneficial ownership.

There is no fee for submitting a beneficial ownership information report to FinCEN.  You do so electronically through a secure filing system available via the FinCEN website:  https://boiefiling.fincen.gov/

Failure to comply with the CTA can result in significant penalties, including both monetary fines and imprisonment.

Who is Required to File a BOI Report?

Companies required to report BOI are called “reporting companies.”  Domestic reporting companies are corporations, (including non-profit corporations that are not tax exempt), limited liability companies, limited/limited liability partnerships and other entities created by the filing of a document with a secretary of state or any similar office under the law of a State or “Indian” Tribe.[i]*  Foreign reporting companies are entities (including corporations, and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office under the laws of a State or Indian Tribe. 

In the unusual circumstance where a domestic corporation or limited liability company is created, but not by the filing of a document with a secretary of state or similar office, such an entity is not a reporting company.  In addition, filing a document with a government agency to obtain (1) an IRS employer identification number, (2) a fictitious business name, or (3) a professional or occupational license does not create a new entity and, therefore, does not make the entity filing such a document a reporting company. 

For additional information to help you determine whether or not your entity is a “reporting company,” see FinCEN’s Small Entity Compliance Guide:  https://www.fincen.gov/boi/small-entity-compliance-guide

Who is Exempt from the CTA’s BOI Filing Requirement?

Twenty-three (23) entities are exempt from the reporting requirements, such as certain publicly traded companies, certain nonprofits, certain large operating companies and certain regulated entities (like banks and insurance companies).  Inactive entities are also generally exempt from these requirements, as are some companies that reported more than $5 million in gross receipts or sales in the previous year.  (Those companies must satisfy other exemption criteria as well.)  Engaging solely in passive activities like holding rental properties, for example, or being unprofitable does not necessarily exempt an entity from the BOI Reporting requirements.

For additional information to help you determine whether or not your entity is exempt from the CTA’s filing requirement, see FinCEN’s Small Entity Compliance Guide:  https://www.fincen.gov/boi/small-entity-compliance-guide

What is Beneficial Ownership Information?

Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company or small business entity.  Under the CTA, a reporting company will have to provide the following information for each individual who is a beneficial owner:

1. The individual’s name;
2. Date of birth;
3. Residential address; and
4. A unique identifying number from an acceptable identification document such as a driver’s license, passport or other identification document issues by a U.S. state, local government or Indian Tribe, and the name of the issuing state or jurisdiction of identification document.

For a checklist to help identify the information required to be reported, see FinCEN’s Small Entity Compliance Guide:  https://www.fincen.gov/boi/small-entity-compliance-guide

Are there Penalties for Failing to Comply with the CTA’s Filing Requirements?

Failure to comply with the CTA can result in significant penalties. According to the Act, civil penalties can reach up to $500 per day for continuing violations.  This civil penalty amount is adjusted annually for inflation, however, and, as of the time of publication of this article, is $591 per day..  Criminal penalties can involve fines up to $10,000 and imprisonment for up to two years for willful non-compliance. 

What Should You Do Next?

1. Assess Your Entity Structure: Determine if your business is subject to the CTA requirements.
2. Gather Necessary Information: Start collecting the required beneficial ownership information from all applicable owners.    In addition, here is the information you will need about the entity in order to file these reports:
3. Name of the entity:
4. State of formation:
5. Business address:
6. FEIN:

3. Consider Obtaining Help with Your Filing:  While many reporting companies will be able to submit their beneficial ownership reports on their own, some may want help meeting their reporting obligations and wish to consult with a professional service provider.  We do not provide that service, but, if you would like assistance, M. Burr Keim Company is a provider that can help you with your filing.  You can reach M. Burr Keim at (215) 563-8113 and you can learn about their BOI Report filing services here:  https://cfs.mburrkeim.com/filing/boir.
4. Stay Informed:  Even if you decide to consult with a professional service provider to assist you in meeting your reporting obligation, the responsibility is ultimately yours.  Make sure you keep an eye on any updates or guidance from FinCEN.

Conclusion

The Corporate Transparency Act represents a significant shift towards greater transparency in business ownership. By understanding your obligations and taking the necessary steps to comply, you can protect your business from potential legal challenges and contribute to a more transparent economic environment.  Staying compliant isn’t just a legal obligation, it’s a smart business strategy.  

---

* Please see FinCEN’s FAQs for the definition of “Indian Tribe” and more detailed information about the reporting requirements of entities formed under Tribal Law.

Want more? Check out our Business Succession Planning Blog HERE: https://wackslaw.net/business-succession-planning/

Need a Refresher on Estate Planning Essentials? Check out our Estate Planning Tpp Lessons using Celebrity Bloopers HERE: https://wackslaw.net/estate-planning-top-lessons-celebrity-blooper-edition-part-1/