New Federal Reporting Requirements for Businesses
The reporting requirements under the Corporate Transparency Act became effective on January 1, 2024.
The Corporate Transparency Act (“CTA”) obligates certain business entities to identify and report on an ongoing basis the significant owners and decision-makers to the US Department of the Treasury's Financial Crimes Enforcement Network (more commonly known as “FinCEN”). The purpose of the CTA is to assist authorities in combatting money laundering and identify criminal organizations who use business entities as “fronts.”
Businesses that are obligated to report must file Beneficial Ownership Information (“BOI”) with FinCEN that identifies the individuals who ultimately own “significant equity” in the business entity and those with “substantial control” over that entity. Each of these individuals is known as a "beneficial owner”.
Below is a general overview of the CTA and its reporting requirements. If you wish to determine whether your Company has an obligation to report, which individuals are “beneficial owners”, and what are the deadlines for reporting, please refer to:
FinCEN’s “Small Entity Compliance Guide” at:
and
FinCEN’s frequently asked questions guide at:
Q. Which business entities must report?
Many corporations, limited liability companies, and partnerships are subject to the reporting requirements. However, the CTA excludes a number of those business entities, including, for example, tax-exempted entities and large operating companies. Be sure to review the exemptions to see if your business entity is not obligated to report.
Q. What is significant equity?
A person owns “significant equity” if they own or control 25% or more of any equity interests in the business entity. Significant equity includes debts or loans where the debt or loan can be converted into a 25% or greater stake in the business sometime in the future. A good example of this is a convertible note. If a business issues a convertible note which permits the note holder to acquire a 25% equity interest in the business at a later date, then the note holder is a “beneficial owner”. Consider that the noteholder falls within the definition of an owner of “significant equity” in the business, despite not yet owning the equity.
Q. Who has substantial control over a business?
The CTA identifies four different criteria for measuring whether an individual has “substantial control” over a business:
The individual is a senior officer (like its President, CEO, CFO or COO)
The individual has authority to remove or appoint a senior officer or a majority of the business’ directors
The individual is an "important decision-maker”
The individual has any other form of substantial control over the business
Q. What beneficial ownership information must be filed?
Full legal name of beneficial owner
Beneficial owner’s residential address
Birthdate of the beneficial owner
The unique numbering on the owner’s identification (that is being submitted)
As part of the filing (the “BOI Report”), the Company must submit a scanned image of a government issued identification, identifying the beneficial owner. FinCEN has a list of acceptable government issued identifications. They include, for example, the biography page of the owner’s unexpired passport or that owner’s current driver’s license.
FinCEN will NOT ask you to explain why you have listed particular beneficial owners. The report does not require you to specify the amount of equity owned or the role or title of any beneficial owner.
Q. What happens if a beneficial owner is a company?
The BOI Report lists the ‘ultimate’ individual owners of the business entity. Consider the following scenario: Apex Inc. is owned by 20% by Abraham, 20% by Beth, and 60% by Holdco Inc. Holdco Inc. is owned 50/50 by Abraham and Beth. When calculating the beneficial ownership of Apex, Abraham and Beth will each beneficially own 50%, representing their 20% direct ownership interest in Apex and 1/2 of Holdco’s 60% ownership in Apex.
Q. The business entity will also need to provide the following information for itself.
Full legal name of business entity
The state where the business entity was formed
Related “Doing Business As” and other trade names
Employer Identification Number (EIN) or tax identification number
Full address of the business entity’s “principal place of business”
Many businesses continue to rely on Post Office Box addresses, mail delivery service addresses or their registered agent address as the entity’s business address. This practice risks civil and criminal penalties, as it is not the principal place of business.
Q. Is there an obligation to update once you have filed?
Yes. Any changes to your initial report must be updated within 30 days of the change occurring.
Q. What are the reporting deadlines?
By January 1, 2025, if the business entity was formed before 2024
Within 90 days of formation, if the business entity is formed in 2024
Within 30 days of formation, if the business entity is formed in 2025 onwards
Within 30 days of a change, after you have filed the initial BOI report
Q. How is the BOI Report filed?
The filing is made online through the FinCEN portal at: https://boiefiling.fincen.gov/fileboir Step by step instructions can be found at: https://boiefiling.fincen.gov/help
Q. What are the penalties for missing a deadline or inaccurate reporting?
There are civil and criminal penalties. A reporting violation is subject to a $500 per day fine up to a maximum of $10,000, and up to two years imprisonment.
Q. Is this information shared?
BOI Reports are not made public. However, FinCEN may share reported information with other federal and state government agencies. In some circumstances, the information may be shared with foreign government agencies.
Additional resources regarding the CTA and the BOI filing portal are available at the FinCEN website, at https://www.fincen.gov/boi.
This communication is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.