Under the new Corporate Transparency Act, after January 1, 2024, business owners are required to submit important ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury. Both new and previously established businesses are mandated to report and face hefty fines and penalties for missing important deadlines. As an aid to counter financial corruption, the Corporate Transparency Act requires companies to disclose important information about their owners to counter crimes like money laundering, financing of terrorism, and tax fraud.
Companies That Need To Pay Attention To The Corporate Transparency Act
The Corporate Transparency Act pertains to privately owned corporations established through documents filed with the Secretary of State or equivalent authorities within the United States. Under this new law, businesses will need to submit a Beneficial Ownership Information (BOI) Report to FinCEN. This information will be collected into a new database that certain federal authorities can reference in financial criminal investigations.
Businesses required to report are those that do not already fall under government oversight for their financials or that meet other exemption requirements listed in FinCEN’s Small Entity Compliance Guide.
Companies That May Be Exempt From Reporting
There are certain exemptions that encompass both foreign and domestic entities doing business in the United States, including limited liability companies and single-entity LLCs. Corporations must assess their eligibility for reporting since not filing properly can result in criminal and civil penalties.
Most of these exemptions are based on the company already having close federal, state, or public oversight of financials. There are 23 types of exempted entities, including:
- Government authorities and municipalities
- Accounting firms
- Financial institutions
- Securities exchanges or brokers
- Insurance companies and providers
- Publicly-traded companies
- Tax-exempt organizations
Other businesses that need not file include sole proprietorships, common law trusts, general partnerships, unincorporated associations, and inactive entities. Be sure to confirm with the Small Entity Compliance Guide directly, however, as just being in some of these categories does not automatically provide exemption. Certain criteria apply to each category to qualify for exemption.
Required Reporting Information In The Beneficial Ownership Information Report
Beneficial owners are defined as a person who owns 25% or more of the corporation or one who exercises “substantial control” over the company required to report. These individuals include decision-makers, senior officers, and any person who controls the company’s focus, investments, and finances. These individuals will need to be reported in the BOI with the following personal information:
- Name
- Address
- Date of birth
- Government identification number and picture of a current passport, driver’s license, state ID, or foreign passport
The report also requires any legal names of the company, such as any trade or “doing business as” identifiers, the taxpayer identification number (TIN), and the current address of the business headquarters within the United States. Reporting companies created after January 1, 2024, are required to submit information about the company applicant or the person or persons who filed the BOI report. This could be any person who filed the documents that registered the company as a legal entity, whether it was the founder themself or an accountant or lawyer who oversaw the preparation and filing process.
The Timeline Required for Filing
Companies under the Corporate Transparency Act are split into three specific categories when it comes to the timeline in which they are required to report. This is based on when a company was created or registered within the United States and based on the time the Corporate Transparency Act went into place on January 1, 2024. The categories are:
- Existing Corporations registered or created before January 1, 2024, will have one year to file their BOI report and must submit it by January 1, 2025.
- New Companies registered or created in the year 2024 will have only 90 days to file from the date they were confirmed as a legal entity.
- Organizations established in 2025 will have 30 calendar days to report, starting the day they are confirmed as a legal entity.
FinCEN believes this rollout will provide organizations with more than enough time to file and will issue strong penalties for every day that a report is late. If a reporting company does not file, fails to file on time, or submits fraudulent information, they could face civil fines of up to $500 per day of the violation and / or criminal charges, including two years of imprisonment and/or a fine of up to $10,000.
It is important to file as soon as you can and keep your information up to date if any beneficial ownership information changes. These include a change occurring to a company’s name, an update for a beneficial owner’s name, address, or identification, or a change in beneficial ownership overall.
How to File a Beneficial Ownership Report
FinCEN’s website offers two different ways to submit your BOI report online. You can download and fill out a blank form from their website and upload the filled-out PDF. The website also allows you to fill out the Beneficial Ownership Information Report directly on the platform. Either option will require uploading photos or scans of the required identification documents for each beneficial owner.
The Beneficial Ownership Information Report only needs to be submitted once. Submitters must provide updates for any changes of status or ownership information, but this report is not an annual or quarterly requirement. If an update is required, you will only have 30 days to make the changes and file the report to the FinCEN database.
Contact MehaffyWeber for Help with The Corporate Transparency Act
If determining your eligibility or managing beneficial ownership information seems overwhelming, our legal team at MehaffyWeber is here to help. We can discuss your concerns and explain how to address any issues with this legislation so your company does not suffer undue fines or other penalties.
With decades of experience, our business transaction attorneys have helped numerous clients, from startups to large corporations. Contact our team today, and we will help you get started right away.