The Corporate Transparency Act (CTA) is a new federal law that will impact almost all business entities.
The CTA requires owners and other persons in control of closely held business entities to register in a national database. This includes owners of Limited Liability Companies (LLCs), corporations, limited partnerships, and other similar business entities. The filing requirements apply to all business of this type regardless of whether the entity is involved in ongoing business activities. For example, if you created an LLC for your vacation home without any ongoing business activities, you are still required to comply with the CTA. The law imposes severe civil and criminal penalties for failure to meet the reporting requirements, so it is critical that business owners familiarize themselves with the rules.
Purpose & Intent of the Corporate Transparency Act
Congress enacted the CTA with the purpose of eliminating shell companies and preventing owners from remaining anonymous with the intent of engaging in illicit business activities. The CTA creates a national database of the individual ownership of the companies in the U.S. with the intent of reducing money laundering, tax evasion, terrorism, and other financial crimes.
Reporting Requirements
The U.S. Treasury, Financial Crimes Enforcement Unit (“FinCEN”) is in charge of creating and maintaining the database. The law requires “reporting companies” to file a “Beneficial Ownership Information” (“BOI”) report with the FinCEN. “Reporting Companies” not the individual owners have the obligation to report the information on their owners to the FinCEN.
A “beneficial owner” is considered to be any owner with least 25% of the ownership in the company. Ownership includes equity, stock, or voting rights, as well as options or other contracts or agreements relating to ownership of the business. Accordingly, it is important to review the reporting requirements and definitions of a beneficial owner carefully as even individuals with certain contractual rights are included.
The report contains information on both the reporting company, such as legal name, trade names, address, state of organization, and federal tax identification number, as well as general background information on all “beneficial owners” of the company. The CTA requires submission of information on all beneficial owners, including names, date of birth, addresses and other background information, as well as copies of the beneficial owner’s identification such as a drivers license or passport.
Reporting Timelines
Entities that existed prior to January 1, 2024, have until January 1, 2025 to comply with the CTA reporting requirements. Any entity formed after January 1, 2024, has 90-days from the date of formation to file their initial BOI reports.
Exceptions to the Reporting Requirements
Charities, large companies (over 20 full time employees with $5 million or more in revenue per year) regulated entities such as banks and credit unions are exempt from the reporting requirements. Inactive entities are also exempt from reporting. However, the rules are very specific as to what entities are considered inactive or exempt so make sure you check the requirements before you decide not to file a report. A comprehensive list of exceptions can be found on the FinCEN website at: https://www.fincen.gov/boi-faqs#C_2
Additional Reporting Information
The BOI reports can be filed online or submitted to the FinCEN at: https://boiefiling.fincen.gov/fileboir
The FinCEN has created a the Small Entity Compliance Guide which provides more specific information for business reporting. The Small Entity Compliance Guide can be found at: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf
If you have additional questions or would like assistance filing your BOI Report for your business, contact business and tax attorney, Kelly R. O’Brien at Measure Law, P.C. www.measurelaw.com, (406) 752-6373