Beginning January 1, 2024, most privately-held entities operating in the U.S. are required to comply with the Corporate Transparency Act (“CTA”), which was passed by Congress to deter money laundering and other illicit activities by increasing transparency.
To implement the CTA, the U.S. Treasury’s Financial Crimes and Enforcement Network (“FinCEN”) issued the Beneficial Owner Information Reporting Rules (the “Rules”). The Rules require that certain entities formed or registered to do business in the U.S. disclose information on the reporting company and its beneficial owners by filing a beneficial ownership information (BOI) report with FinCEN. Note that reporting companies created or registered to do business after January 1, 2024 must disclose additional information.
Contact Howard & Howard for information on how the Rules may apply to you. FinCen’s official guidance and additional information related to the Rules can be found in the Small Entity Compliance Guide – click HERE - and FAQ’s – click HERE.
What is a reporting company?
There are two categories of reporting companies.
- A domestic reporting company is a corporation, LLC or other entity that is created by filing a document with a U.S. state or tribal office (a “Document”).
- A foreign reporting company is an entity formed under foreign laws but registered to operate in the U.S. by filing a Document.
If your company does not fall under either of these categories or falls under one of the exemptions outlined below, it does not have to file a BOI report.
Who are beneficial owners?
The term “beneficial owner” is broadly defined. Unless an exception applies, a beneficial owner is any individual who, directly or indirectly (a) exercises substantial control over the reporting company; or (b) owns or controls at least 25% of the ownership interests of the reporting company.
When a reporting company is owned or managed by a trust or other entity, the analysis of who is or is not a beneficial owner becomes a bit more complicated. Our team at Howard & Howard is well equipped to help you with this analysis and ensure the accuracy of a BOI report.
The exceptions from filing include minor children, certain individuals who act on behalf of others, and creditors. See the Guide for a complete list.
Who is exempt from the Rules?
The Rules exempt twenty-three entities from the reporting requirements. Many of the exemptions apply to highly regulated businesses (such as publicly traded companies, banks, credit unions, investment companies, tax exempt entities, and registered brokers and dealers) and inactive companies. One exemption that will have broad applicability is for large operating companies: companies that (a) have more than 20 full-time employees in the U.S.; (b) filed a tax return in the previous year reflecting gross receipts or sales of at least $5 million; and (c) have a physical operating presence in the U.S.
When is the BOI report due?
- Reports will be accepted starting January 1, 2024.
- Reporting companies created or registered to do business before January 1, 2024, must file their initial BOI reports by January 1, 2025.
- Reporting companies created or registered during 2024 must file their initial BOI reports within 90 days after the company’s creation or registration.
What information must be reported?
For a reporting company:
- Full legal name;
- Any trade or “doing business as” name;
- Complete current U.S. address;
- State, tribal, or foreign jurisdiction of formation;
- For a foreign reporting company only, state or tribal jurisdiction of first registration; and
- Internal Revenue Service Taxpayer Identification Number.
For each beneficial owner:
- Full legal name;
- Date of birth;
- Complete current address; and
- Identification number from an acceptable identification document (such as a driver's license or passport), along with an image of such document.
Because of the sensitive nature of some of this information, companies should follow appropriate protocols to protect it from unauthorized use or access. Howard & Howard can help you work with third party service providers to directly provide the required information to minimize the exposure of your sensitive information.
All information must be accurate when the report is filed. Any changes must be reporting within 30 days. Each reporting company should establish internal procedures to assure it can comply with this continuing reporting requirement.
- Failure to timely report may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years, a fine of up to $10,000, or both.
- FinCEN is not expected to send letters to businesses requesting information. Letters to this effect are not legitimate, and can be reported to the Better Business Bureau’s scam tracker.