Corporate Transparency Act: New Mandatory Disclosure Requirements Effective Jan 1, 2024

By: Lauren Morales, Esq., Associate Attorney at The Elias Law Firm, PLLC

Effective as of January 1, 2024, most businesses will have a new disclosure obligation due to the Corporate Transparency Act (Act).  This Act is administered and enforced by the Financial Crimes Enforcement Network (FinCEN), and each business will be required to submit their beneficial ownership information (BOI) to FinCEN.

So, what do you need to know to be prepared? This article is geared towards educating you on the Act, its purpose, the filing deadlines and requirements, the companies that are impacted and exempt, and the penalties for failing to comply.

  1. The Purpose of the Corporate Transparency Act

The Corporate Transparency Act is aimed to prevent corporations, limited liability companies, limited partnerships and/or comparable entities from obscuring its ownership interests in efforts to commit money laundering, terrorist financing, tax fraud, and other illicit behaviors.

  1. Who Does the Act Apply to?

The Act mandates that entities operating in or registered to do business in the U.S. to comply with reporting requirements for beneficial ownership. A beneficial owner is defined in 31 U.S.C. § 5336(a)(11)(A) as an individual who exercise substantial control over the company. Furthermore, BOI reporting is necessary for those who own or control 25% or more of the company’s ownership interests.

Additionally, beneficial owners include senior officers, individuals with the authority to appoint or remove senior officers or a majority of the board of directors, those actively directing or substantially influencing “important decisions” within the company, or individuals with any other substantial form of control over the reporting company.

The report must be filed with FinCEN using their secure electronic filing system on their website. There are two types of reporting companies: (1) domestic reporting companies and (2) foreign reporting companies. It is likely that you own a domestic reporting company, which is defined as a corporation, limited liability company, and other entities created by the filing of a document any secretary of state in the U.S. One positive about the reporting mandate is that it’s only a one-time report, unless you need to update or correct your initial filing.

  1. What are the filing deadlines under the Act?

If a company is created or registered after January 1st, 2024, then the company has ninety (90) days after its creation of formation to report its beneficial ownership information. However, for companies created or registered before January 1, 2024, the filing deadline is January 1, 2025.

  1. What are the filing requirements?

The company will need to report the following:

  1. Its legal name;
  2. Any trade names, “doing business as” (d/b/a) or “trading as” (t/a) names;
  3. The current street address of its principal place of business if that address is in the United States or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States;
  4. Its jurisdiction of formation or registration; and
  5. Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).
  6. A reporting company will also have to indicate whether it is filing an initial report, or a correction or an update of a prior report.

For each individual who is a beneficial owner, a reporting company will have to provide:

  1. The individual’s name;
  2. Date of birth;
  3. Residential address; and
  4. An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.
  5. The reporting company will also have to upload an image of the identification document used to obtain the identifying number in item 4.
  6. The Penalties for Failing to Comply:

FinCEN has made it clear that failing to report your company’s beneficial ownership can cause you to face civil and criminal penalties. As specified in the Act, a person who willfully violates the Beneficial Ownership Interest reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two (2) years imprisonment and a fine of up to $10,000.

Potential violations include willfully failing to file a Beneficial Ownership Information Report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information. See more about the penalties here.

  1. Exempt Companies:

If your company as the following: (1) more than 20 full time employees; (2) is located in a physical office in the United States; and (3) has filed a federal income tax or information return in the previous year of more than $5 million in gross receipts or sales, then you are exempt from filing the Beneficial Ownership Interest Report for the company.

There are 23 types of entities that are exempt from the beneficial ownership information filing requirements. These entities include publicly traded companies meeting specified requirements, many non-profits, and certain large operating companies. Here is a link from FinCEN’s website showing which entities are exempt. FinCEN’s website.

Let us help you!

Our office is happy to assist you in complying with the Corporate Transparency Act. Contact us today for more information at (305) 823-2300.