Yes.
WHAT IS IT?
The Corporate Transparency Act (CTA) became effective on January 1, 2024. For the first time, the United States now will require certain legal entities to report to the federal government identifying information about the individuals who directly or indirectly own or control a company within the scope of the new legislation. This information will be housed in a centralized, secure nonpublic federal government database to be administered by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
The reporting rules are designed to prevent financial crimes, including money laundering, corruption, and tax evasion. The beneficial owner information (BOI) Reporting Rule requires millions of “reporting companies” to report information on their “beneficial owners” to FinCEN and sets forth both civil and criminal penalties for those owners that fail to comply.
DOES THIS APPLY TO MY ENTITY?
Go through these questions to determine if the CTA reporting requirement applies to your entity:
Is your entity a
- Large operating company (20 FT US employees and $5,000,000 or more in US gross receipts)?
- Publicly traded or regulated?
- General partnership?
- Trust?
- CPA firm?
- Tax exempt entity (but be careful about entities that operate until they receive their tax exempt status)?
- Sole Proprietorship
If you answered yes to any of these, then no, your entity is not required to file. If you answered no to all of them, then your company is a “reporting company” and will be required to report.
WHEN IS THE DEADLINE?
There are three different deadlines:
1. For entities registered prior to January 1, 2024, the first report (and maybe the only report over the lifetime of the entity) is due January 1, 2025, and may be filed any time after January 1, 2024.
2. For entities registered on or after January 1, 2024, the first report is due 30 days after formation/registration/organization of the entity. However, during 2024 only, that deadline is 90 days, not 30. Check back here for any updates.
3. For entities in which a beneficial owner’s information has changed, the deadline to file an updated BOI report is 30 days from the date of any change.
IS THERE AN ANNUAL REPORTING REQUIREMENT?
No. But see below for when reports may otherwise be due following the initial report.
WHAT INFORMATION GETS REPORTED?
1. Basic entity information, including its tax ID number.
2. Beneficial Owner information: Name, Residential address, DOB, Passport or CDL or State ID card #, Images of the IDs uploaded.
3. Company Applicant information: Name, Residential address, DOB, Passport or CDL or State ID card #, Images of the IDs uploaded.
WHAT IS A COMPANY APPLICANT?
“Company Applicants” are the individuals who file or direct the filing of the document that: (1) creates the domestic reporting company, or (2) first registers the foreign reporting company in the U.S. If there is more than one person involved in the filing of the document, the individual who is primarily responsible for directing or controlling the particular filing is the Company Applicant.
There can be a maximum of only two Company Applicants for each entity: the person who directly files the relevant document and the person who is primarily responsible for directing or controlling the filing of the relevant document.
Note: Only reporting companies formed on or after January 1, 2024, must report Company Applicants.
IS THE REPORTED INFORMATION PUBLIC?
No. The collected information will be housed in a centralized, secure nonpublic federal government database to be administered by FinCEN.
HOW DO I FILE THE REPORT?
If your company is required to file a BOI report, you must do so electronically through a secure filing system.
Click here to go directly to the website to file the online BOI report.
There may be certain circumstances in which a reporting company is unable to electronically file a BOI report through FinCEN’s secure filing system. In those cases, the reporting company should contact FinCEN.
WHO IS REQUIRED TO REPORT?
The final rules provide two categories of reporting companies: domestic and foreign. A domestic reporting company is defined as a corporation, LLC, LP, or other entity that is created by the filing of a document with a secretary of state or any similar office under the law of a state or Native American tribe. In some states, that may even be a DBA (Fictitious Business Name Statement), though not in California. A foreign reporting company is defined as a corporation, LLC, or other entity that is formed under the law of a foreign country that has registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar agency.
WHAT IS A BENEFICIAL OWNER?
It’s a very broad definition . . .
Beneficial owners are generally defined as individuals who own or control an entity, either directly or indirectly, which includes individuals who own 25% or more of the company, or any individuals who exercise substantial control over the entity. The definition of “Substantial Control” is extremely broad. The full definition can be found here. Here are a few examples of what it means, to give you an idea (make sure you’re sitting down for this – it’s pretty remarkable):
1. a senior officer of the reporting company (e.g., a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other office (regardless of official title) who performs a similar function);
2. has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body);
3. directs, determines, or has substantial influence over important matters affecting the reporting company, including but not limited to:
- The nature, scope, and attributes of the company’s business, including the sale, lease, mortgage, or other transfer of any of the company’s principal assets;
- The reorganization, dissolution, or merger of the company;
- Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the company’s operating budget;
- The selection or termination of the company’s business lines or ventures, or geographical focus;
- Senior officer compensation schemes and incentive programs;
- The entry into, termination of, or the fulfillment of significant contracts;
- Amendments to any of the company’s governance documents (e.g., articles of incorporation or bylaws, significant policies, or procedures;
- Has any other form of substantial control over the company.
ARE THERE EXCEPTIONS TO HAVING TO REPORT?
Yes, but generally speaking, small businesses that operate through an LLC or corporation aren’t going to be spared.
Here are the exceptions to reporting:
- Sole Proprietorships
- General partnerships
- Trusts
- Large Companies (20 FT US employees and $5,000,000 or more in US gross receipts)
- CPAs
- Tax exempt entities (Nonprofits) (but be careful about entities that operate until they receive their tax exempt status)
HOW OFTEN DOES MY ENTITY NEED TO REPORT?
The BOI report needs to be updated if any of the documents provided expire or any of the data submitted for the beneficial owner changes.
It also needs to be updated when there’s any change in the ownership structure.
WHAT HAPPENS IF I MISS THE DEADLINE?
Bad things. Very bad things. Here you go:
1. $500/day up to $10,000.
2. Up to two years’ imprisonment (yes, you read that correctly). Who’s going to jail you might ask? An individual may be held liable under the CTA if they caused the failure or were a senior officer at the time of the failure. Shaking your head yet?
OTHER RESOURCES:
www.fincen.gov/boi
www.fincen.gov/boi-faqs
www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf
www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet