In 2021, Congress passed the Corporate Transparency Act (“CTA”), as part of the National Defense Authorization Act of 2021, with the stated goals of increasing the transparency of legal entities and detecting and combatting domestic and international uses of business entities to illicitly conceal, transfer or use financial or other assets.
The CTA imposes significant new reporting burdens on both domestic and foreign entities which meet the definition of “Reporting Company” under the act. Reporting Companies must report information about the company, its “Beneficial Owners,” and its “Company Applicants” to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) through its Beneficial Ownership Information E-Filing (“BOI E-Filing”) System.
A domestic Reporting Company is a corporation (both C and S corporations), LLC, limited partnership or similar entity formed in the U.S. through a filing with a Secretary of State or any similar office under the law of a state or Indian tribe. A foreign Reporting Company is an entity formed under the laws of a foreign jurisdiction (outside of the U.S.) that is registered to do business in the U.S. through a filing with such agencies.
Certain types of entities are exempt from the requirements of the CTA. The exempt companies generally involve those that are already subject to substantial federal reporting requirements, including: public companies, banks, securities brokers and dealers, insurance companies, registered investment companies, accounting firms, tax exempt entities (including subsidiaries that are controlled or wholly owned, directly or indirectly), inactive businesses, and “Large Operating Companies”.
An entity is a Large Operating Company if it:
First, Reporting Companies must report the following information about the company:
Second, Reporting Companies must report the following information about its Beneficial Owners AND Company Applicants:
“Beneficial Owner” means any individual who, directly or indirectly:
“Ownership interest” means:
“Substantial control” means:
Note that Beneficial Owner does NOT include:
For each Reporting Company, there are one or two Company Applicants:
Reporting Companies formed prior to January 1, 2024 must file an initial disclosure by January 1, 2025, but such disclosures do not need to include information regarding Company Applicants.
Reporting Companies formed on or after January 1, 2024, but before January 1, 2025, must file an initial disclosure within 90 days of formation of the entity (or the date the company registered to do business in a U.S. state, for foreign Reporting Companies).
Reporting Companies formed on or after January 1, 2025 must file an initial disclosure within 30 days of formation of the entity (or the date the company registered to do business in a U.S. state, for foreign Reporting Companies).
Also, an entity that becomes a Reporting Company because it has ceased to qualify for exempt status must file a disclosure within 30 days of ceasing its exempt status.
Reporting Companies must file an updated report within 30 days of the date of any change to ANY of the information provided to FinCEN in the most recent disclosure. Reporting Companies must also file corrected reports within 30 days of becoming aware that any information reported is inaccurate. Similarly, a Reporting Company that has previously filed a disclosure but becomes exempt must file, within 30 days, an updated disclosure showing it is no longer a “Reporting Company.”
Accordingly, Reporting Companies should establish mechanisms by which they are notified by Beneficial Owners of any changes to their reported information and should implement indemnification and notification provisions related to the CTA into corporate governance documentation.
FinCEN has established the BOI E-Filing system which allows individuals and Reporting Companies to create profiles directly with FinCEN that captures the information required for disclosure reports. Profiles will be linked to a unique FinCEN identifier, which can be used in lieu of direct disclosure submissions allowing for more efficient, less costly reporting, enhanced privacy protection and reduced cybersecurity risk. The electronic reporting system is now up and running and accepting filings at https://boiefiling.fincen.gov.
Penalties for failure to timely file a required disclosure include a civil penalty of $500 per day for each day the violation continues. If a person willfully provides false beneficial ownership information, or willfully fails to report complete or updated beneficial ownership information, the person could be fined up to $10,000 and imprisoned for up to two years.
Additional Resources:
The Corporate Transparency Act (CTA)
Beneficial Ownership Information Reporting
U.S. Department of Treasury
American Bar Association
