Corporate Transparency Act: How Business Owners Can Comply With New Ownership Disclosures For Their Entities
By Melanie De Marco, Esq.
November 20, 2023
Starting on January 1, 2024 both new businesses, and existing entities will need to comply with the new Corporate Transparency Act. That means that starting January 1, 2024, many companies will be required to report information to the U.S. government about who ultimately owns and controls them.
This information will be reported to the Financial Crimes Enforcement Network (“FinCEN”), which was created by the U.S. Treasury Department. Here’s what you need to know:
First, who will be required to report? The answer is most business entities, with limited exceptions. Companies that are required to report are called “reporting companies”. Reporting companies include domestic corporations, limited liability companies, and any other entities created by filing a document with the Secretary of State (or any similar office in the U.S.), as well as any foreign company registered to do business in any U.S. State or Tribal jurisdiction.
There are 23 reporting exemptions, primarily related to financial institutions such as banks, credit unions, securities brokers, investment companies, insurance companies, and accounting firms, as well as government authorities, public utilities, and other tax-exempt entities. FinCEN’s Small Entity Compliance Guide includes a checklist for each of the 23 exemptions that may help determine whether a company qualifies for an exemption. Companies should carefully review the exemption and qualifying criteria and speak with a professional before concluding that their company is exempt from reporting under the Corporate Transparency Act. (https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf, see Chapter 1, “Does my company have to report its beneficial owners?”).
What information will need to be reported depends on when the entity was created. For entities created on or after January 1, 2024, companies will need to report information about itself, its beneficial owners, and its company applicants (more on that later). For entities created before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners.
Reporting companies will need to report (1) its legal name; (2) any trade names, d/b/a, or t/a names; (3) the current physical address of its principal place of business; (4) what state it was formed or registered in; and (5) its Taxpayer Identification Number.
Reporting companies will also need to provide information on each of its “beneficial owners.” For each beneficial owner, the reporting company will need to provide (1) the individual’s name; (2) date of birth; (3) residential address; and (4) an identifying number from a government-issued document such as a passport or driver’s license, along with a photo of the identification document used. For entities formed after January 1, 2024, this information will need to be provided for company applicants as well.
The terms “beneficial owners” and “company applicants” are thrown around a lot when talking about the regulations of the Corporate Transparency Act, and they have definitions under the statute. A beneficial owner is an individual who either directly or indirectly (1) exercises substantial control over the reporting company; or (2) owns at least 25% of the reporting company. A beneficial owner must be an individual. This means that even if you own your company or exercise substantial control through another, unaffiliated company (or perhaps several companies) that you have control over, you must still report as a beneficial owner of the reporting company.
Without diving into the regulatory rabbit hole, the purpose of the Corporate Transparency Act is essentially to try to combat money laundering and other financial crimes by requiring entities to report their “beneficial ownership information” to the United States Government; the idea being that “shell companies” will be easier to track.
For new entities created after January 1, 2024, the company applicant’s information will also need to be reported. A “company applicant” is someone who (1) directly files the document that creates or registers the company; and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
Importantly, unless your company fits into one of the specific exemptions, reporting is mandatory, and a parent company cannot file a single Beneficial Ownership Information Report (“BOI Report”) on behalf of its entire group of companies. Every single entity that meets the definition of a reporting company must file its own BOI Report. A person or company that fails to timely file a BOI Report could face civil and/or criminal penalties.
BOI Reports must be filed by January 1, 2025, for any reporting company created prior to January 1, 2024. For entities created on or after January 1, 2024, BOI Reports must be filed within 30 days of entity creation, or any change in beneficial owners.
If you think you are a beneficial owner of a reporting entity, an experienced legal professional can help navigate FinCEN reporting and the Corporate Transparency Act. Additional information can be found on FinCEN’s website at https://www.fincen.gov/boi. At that link, you can find the Small Entity Compliance Guide, instructional videos, and other resources to assist your business with both reporting and any additional concerns you may have regarding compliance.
Finally, beware of fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements. FinCEN has reported that fraudulent notices have already been rampant, attempting to take advantage of the upheaval and uncertainty that businesses are experiencing in the face of new regulations. Please note that FinCEN does not send unsolicited requests. If you receive an “Important Compliance Notice” or any other notice purporting to be from FinCEN, do not click on any links or QR codes, and do not respond to the messages. FinCEN is not accepting reports at all before January 1, 2024.
In case you are wondering who you are reporting this personal information to, 31 U.S.C. 310 establishes FinCEN and describes FinCEN’s duties and powers to include:
• Maintaining a government-wide data access service with a range of financial transactions information;
• Analyzing and disseminating information in support of law enforcement investigatory professionals at the Federal, State, Local, and International levels;
• Determining emerging trends and methods in money laundering and other financial crimes;
• Serving as the Financial Intelligence Unit of the United States; and
• Carrying out other delegated regulatory responsibilities
In addition, Treasury Order 180-01 describes FinCEN’s responsibilities to “implement, administer, and enforce compliance with the authorities contained in what is commonly known as the ‘Bank Secrecy Act.’” (See also, https://www.fincen.gov/resources/fincens-legal-authorities).
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have received a letter threatening legal action or are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
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By Melanie De Marco, Esq.
November 20, 2023
Starting on January 1, 2024 both new businesses, and existing entities will need to comply with the new Corporate Transparency Act. That means that starting January 1, 2024, many companies will be required to report information to the U.S. government about who ultimately owns and controls them.
This information will be reported to the Financial Crimes Enforcement Network (“FinCEN”), which was created by the U.S. Treasury Department. Here’s what you need to know:
First, who will be required to report? The answer is most business entities, with limited exceptions. Companies that are required to report are called “reporting companies”. Reporting companies include domestic corporations, limited liability companies, and any other entities created by filing a document with the Secretary of State (or any similar office in the U.S.), as well as any foreign company registered to do business in any U.S. State or Tribal jurisdiction.
There are 23 reporting exemptions, primarily related to financial institutions such as banks, credit unions, securities brokers, investment companies, insurance companies, and accounting firms, as well as government authorities, public utilities, and other tax-exempt entities. FinCEN’s Small Entity Compliance Guide includes a checklist for each of the 23 exemptions that may help determine whether a company qualifies for an exemption. Companies should carefully review the exemption and qualifying criteria and speak with a professional before concluding that their company is exempt from reporting under the Corporate Transparency Act. (https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf, see Chapter 1, “Does my company have to report its beneficial owners?”).
What information will need to be reported depends on when the entity was created. For entities created on or after January 1, 2024, companies will need to report information about itself, its beneficial owners, and its company applicants (more on that later). For entities created before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners.
Reporting companies will need to report (1) its legal name; (2) any trade names, d/b/a, or t/a names; (3) the current physical address of its principal place of business; (4) what state it was formed or registered in; and (5) its Taxpayer Identification Number.
Reporting companies will also need to provide information on each of its “beneficial owners.” For each beneficial owner, the reporting company will need to provide (1) the individual’s name; (2) date of birth; (3) residential address; and (4) an identifying number from a government-issued document such as a passport or driver’s license, along with a photo of the identification document used. For entities formed after January 1, 2024, this information will need to be provided for company applicants as well.
The terms “beneficial owners” and “company applicants” are thrown around a lot when talking about the regulations of the Corporate Transparency Act, and they have definitions under the statute. A beneficial owner is an individual who either directly or indirectly (1) exercises substantial control over the reporting company; or (2) owns at least 25% of the reporting company. A beneficial owner must be an individual. This means that even if you own your company or exercise substantial control through another, unaffiliated company (or perhaps several companies) that you have control over, you must still report as a beneficial owner of the reporting company.
Without diving into the regulatory rabbit hole, the purpose of the Corporate Transparency Act is essentially to try to combat money laundering and other financial crimes by requiring entities to report their “beneficial ownership information” to the United States Government; the idea being that “shell companies” will be easier to track.
For new entities created after January 1, 2024, the company applicant’s information will also need to be reported. A “company applicant” is someone who (1) directly files the document that creates or registers the company; and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
Importantly, unless your company fits into one of the specific exemptions, reporting is mandatory, and a parent company cannot file a single Beneficial Ownership Information Report (“BOI Report”) on behalf of its entire group of companies. Every single entity that meets the definition of a reporting company must file its own BOI Report. A person or company that fails to timely file a BOI Report could face civil and/or criminal penalties.
BOI Reports must be filed by January 1, 2025, for any reporting company created prior to January 1, 2024. For entities created on or after January 1, 2024, BOI Reports must be filed within 30 days of entity creation, or any change in beneficial owners.
If you think you are a beneficial owner of a reporting entity, an experienced legal professional can help navigate FinCEN reporting and the Corporate Transparency Act. Additional information can be found on FinCEN’s website at https://www.fincen.gov/boi. At that link, you can find the Small Entity Compliance Guide, instructional videos, and other resources to assist your business with both reporting and any additional concerns you may have regarding compliance.
Finally, beware of fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements. FinCEN has reported that fraudulent notices have already been rampant, attempting to take advantage of the upheaval and uncertainty that businesses are experiencing in the face of new regulations. Please note that FinCEN does not send unsolicited requests. If you receive an “Important Compliance Notice” or any other notice purporting to be from FinCEN, do not click on any links or QR codes, and do not respond to the messages. FinCEN is not accepting reports at all before January 1, 2024.
In case you are wondering who you are reporting this personal information to, 31 U.S.C. 310 establishes FinCEN and describes FinCEN’s duties and powers to include:
• Maintaining a government-wide data access service with a range of financial transactions information;
• Analyzing and disseminating information in support of law enforcement investigatory professionals at the Federal, State, Local, and International levels;
• Determining emerging trends and methods in money laundering and other financial crimes;
• Serving as the Financial Intelligence Unit of the United States; and
• Carrying out other delegated regulatory responsibilities
In addition, Treasury Order 180-01 describes FinCEN’s responsibilities to “implement, administer, and enforce compliance with the authorities contained in what is commonly known as the ‘Bank Secrecy Act.’” (See also, https://www.fincen.gov/resources/fincens-legal-authorities).
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have received a letter threatening legal action or are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
Recent and Popular Articles From Our Blog:
• May 10, 2022 – Using the 1031 to Reinvest
• August 23, 2022 – Understanding Private Road Maintenance
• January 10, 2023 – Website Accessibility Requirements
• February 14, 2023 – Understanding Mediation and Arbitration in RPA
• April 4, 2023 – Understanding Liquidated Damages in a Home Purchase Contract
• June 20, 2023 – Understanding the Lis Pendens
• June 27, 2023 – Do’s and Don’ts Guidelines to a Dental Practice Transition