Navigating the Corporate Transparency Act: What You Need to Know About Beneficial Ownership Information Reporting

By: Jeffrey Lynne October 12, 2024 12:52 am

Time to read: 5 Minutes

Navigating the Corporate Transparency Act: What You Need to Know About Beneficial Ownership Information Reporting

By: Michael Seiger

In an effort to increase transparency and curb illegal financial activities, the U.S. government introduced the Corporate Transparency Act (CTA) as part of a broader initiative to strengthen anti-money laundering efforts. As of January 1, 2024, the CTA imposes new reporting requirements that will impact a wide range of business entities in the United States. 

If you’re a business owner or involved in forming entities, it’s crucial to familiarize yourself with these requirements to remain compliant and avoid potential penalties. 

What is the CTA? 

The Corporate Transparency Act is part of a larger legislative framework designed to improve visibility into the ownership structures of businesses across the U.S. By requiring many entities to report information about the entity itself, as well as its beneficial owners and company applicants, the CTA aims to prevent individuals from using shell companies to conceal their identities for unlawful purposes, such as tax evasion or money laundering. 

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

The CTA’s reporting obligations apply to most corporations, limited liability companies, and similar entities that are created by filing a document with a U.S. secretary of state or similar office. The reporting obligations can even apply to foreign entities formed in another country if the entity is also registered to do business in the U.S. 

However, certain businesses, mostly larger, publicly traded companies, and certain heavily regulated entities, are generally exempt from the requirement to report under the CTA. While there are 23 categories of exemptions, some of the more common include: 

  • Publicly traded companies 
  • Financial institutions like banks and credit unions 
  • Insurance providers 
  • Securities firms and dealers 
  • Tax-exempt non-profits 
  • Large operating companies that meet specific criteria (e.g., 20+ employees, over $5 million in gross sales or receipts, and a U.S. physical presence) 

Whose Information is Required to be Reported Under the CTA? 

If an entity is subject to the CTA’s reporting requirements, it must file a beneficial ownership information (BOI) report to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, which must include certain information about the entity itself, as well as its beneficial owners and company applicants. 

A beneficial owner is anyone who: (1) owns or controls at least 25% of the ownership interest, or (2) has substantial control over the entity, directly or indirectly. 

A company applicant includes any individual who: (1) directly files formation documents for the entity, or (2) is primarily responsible for directing or controlling the filing action. 

What Information Is Required in a BOI Report? 

The reporting company must provide details about itself, including: 

  • Full legal name of the company 
  • Any trade or “doing business as” names used by the company 
  • Business street address 
  • Jurisdiction of formation or registration 
  • IRS Tax Identification Number (including an Employer Identification Number (EIN)) 

For each beneficial owner and company applicant, the following information must be reported: 

  • Full legal name 
  • Date of birth 
  • Current residential or business address 
  • A unique identifying number, such as a passport number or driver’s license number, along with an image of the physical ID or document containing such number 

Note, however, that entities formed before January 1, 2024 are not required to report company applicant information. For entities formed on or after this date, both beneficial owners and company applicants must be reported. 

When is the Deadline to File a BOI Report? 

The CTA sets different filing deadlines based on the reporting company’s formation date: 

  • Entities formed before January 1, 2024 must file by January 1, 2025. 
  • Entities formed during 2024 must file within 90 days of formation. 
  • Entities formed on or after January 1, 2025 have 30 days to file. 

Entities must also file updates within 30 days of any changes in beneficial ownership. 

What are the Penalties for Non-Compliance? 

Non-compliance with the CTA can lead to significant penalties. If a business fails to file or submits inaccurate information, it may face civil penalties up to $500 per day and, in cases of intentional violations, criminal penalties can include fines up to $10,000 or even imprisonment for up to two years. 

What can I do to Prepare my Business for Compliance? 

To ensure compliance with the CTA, businesses should: 

  • Evaluate Ownership Structures: Identify if the company is required to report, and if so, who qualifies as a beneficial owner and company applicant. 
  • Gather Necessary Information: If the company is required to report, collect all required details for the company and each beneficial owner and company applicant. 
  • Stay Updated: FinCEN may provide further guidance, so keep an eye on any updates or changes. Additionally, there have been a number of lawsuits brought against the CTA challenging its constitutionality, but those cases are still ongoing, leaving the CTA to remain in effect for the time being. 
  • Consult Professionals: If you have questions or uncertainties, seeking advice from an attorney or financial expert can help navigate these new requirements. 

Final Thoughts 

The Corporate Transparency Act represents a significant regulatory change for businesses, particularly smaller entities. While the new reporting requirements might seem complex, understanding and fulfilling these obligations is crucial to ensure compliance and avoid penalties. 

If you need guidance on whether your business needs to file a BOI report, or if you want help with the filing process, please contact our attorneys below: 

Michael L. Seiger, Esq. 

This blog is made available by Beighley, Myrick, Udell, Lynne + Zeichman, P.A. (the “Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of the Firm or its partners, employees or clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. 

Jeffrey Lynne

Jeffrey Lynne is a partner at Beighley, Myrick, Udell, Lynne + Zeichman, P.A. in both the firm’s Land Use & Zoning and Governmental Affairs & Regulated Industries practice groups. He also chairs the Firm’s Behavioral Healthcare Practice Group and represents clients with local, state and federal zoning, permitting, licensing, and regulatory matters. Mr. Lynne received his undergraduate education at the University of Florida and attended law school at the University of Miami (1997).

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