Beginning January 1, 2024, various companies nationwide will be required to submit beneficial ownership reports to the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of Treasury.
The Corporate Transparency Act (CTA) was created to give certain governmental authorities and financial institutions access to beneficial ownership information to assist with the prevention of financial crimes. A byproduct of the legislation, however, is that the CTA places a burden on honest business owners to comply with the reporting requirements or be penalized for noncompliance.
Who Must Comply?
The CTA requires all reporting companies to file reports to identify, among other things, the company’s beneficial owners and company applicant.1 A “reporting company” is defined as a corporation, limited liability company (LLC), and other similar entities created by filing a document with a secretary of state or a similar office under state law.2 Reporting companies may ultimately be exempt from the reporting requirements as there are a number of exemptions identified in the CTA.
Who is a Beneficial Owner?
A “beneficial owner” is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise (i) exercises “substantial control” over the entity or (ii) owns or controls not less than 25 percent of the ownership interest of the entity.3 The CTA makes note of examples of individuals that could exercise substantial control over a reporting company and those individuals include managers, officers, directors and third parties empowered to make decisions on behalf of the reporting company.
Who is the Company Applicant?
Additionally, those companies created or registered on or after January 1, 2024 will also be required to report the company applicant. The “company applicant” could be one or both of the following individuals: 1) the individual who is primarily responsible for directing or controlling the filing of the application to form or register a corporation, limited liability company, or other similar entity under the laws of a state; and/or 2) the individual who directly files the document to create or register the reporting company. If only one person filed the relevant documentation, then only that person is the company applicant.
Information in the Reports
A reporting company will be required to report to FinCEN information about the reporting company itself, including, without limitation, its legal name, any trade name or assumed name (DBA), its address, the jurisdiction in which it was formed or first registered, and its taxpayer identification number.4
A beneficial owner and each company applicant of the reporting company will be required to file a Beneficial Owner Information Report (BOI Report)5 and such report will need to include the individual’s full legal name, birthdate, address, the unique identifying number from a non-expired driver’s license, identification document, or U.S. passport, and an image of the identification document.
Deadlines for Filing
For those reporting companies formed prior to January 1, 2024, reports to FinCEN must be submitted no later than January 1, 2025. For those entities formed after January 1, 2024, the required report must be filed within 30 days of its formation. Please note that a proposal has been made to extend the filing deadline from 30 days to 90 days for entities created or registered on or after January 1, 2024 and before January 1, 2025. In addition, any and all updates and corrections to reports previously submitted will require the prompt filing of a new report.
Failure to Comply
Certain penalties are established under the CTA, including fines or even imprisonment, for individuals who knowingly provide false or fraudulent information in connection with the required reports and for those entities that fail to timely comply with the reporting requirements.
If you have any questions about the Corporate Transparency Act and your company’s compliance with the CTA, contact the experienced attorneys at Unruh Turner Burke & Frees through our website or via telephone at (610) 692-1371.
1 31 U.S.C. §5336(b)(1)(A).
2 31 U.S.C. §5226(a)(11).
3 31 U.S.C. §5336(a)(3).
4 31 U.S.C. §5336(b)(2)(A).
5 31 U.S.C. §5336(b)(2)(A).