The Corporate Transparency Act expanded anti-money laundering laws and created new reporting requirements for certain companies doing business in the U.S. Beginning in 2024, many small businesses are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity.
Who Must File: Both domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with the secretary of state or similar office to create or register the entity.
- Corporations (including S corporations), LLCs (including single-member LLCs), and other entities formed through the secretary of state
- Foreign companies are required to file reports if they are registered with the secretary of state or similar office under state law
Who is Exempt: Many of the exempted companies are already required to report ownership information to a governmental authority.
- Large operating companies with more than 20 full-time US employees, an operating presence at a physical office within the US, and more than $5,000,000 of US-sourced gross receipts reported on its prior year federal income tax return
- Sole proprietorships (excluding single member LLCs), trusts and general partnerships do not require the filing of a formal document with the secretary of state, they generally are not considered a reporting company and will not have a filing requirement
Required Information: Beneficial ownership information (BOI) must be reported for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants.
- Individual’s full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a non-expired US passport, state driver’s license, or other government-issued ID card.
- If the individual does not have any of those documents, then a non-expired foreign passport can be used. An image of the document showing the unique ID number must also be included with the report.
Beneficial Owners: Two groups of individuals are considered beneficial owners of a reporting company:
- Any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company
- Any individual who exercises substantial control over the reporting company, including senior officers, and those with authority to appoint or remove senior officers and board members. Actual ownership is not required to determine who is a beneficial owner for reporting purposes.
Company Applicants: The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney). Company applicants must provide the same information that is required of beneficial owners, but only if the reporting company is formed or registered after 2023.
FinCEN Identifiers: Individuals and reporting companies can request a FinCEN Identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique number assigned by FinCEN which is obtained by submitting the same information as is required of a beneficial owner or reporting company. A FinCEN ID may be useful to individuals that prefer to send their personal information directly to FinCEN rather through a reporting company, or to individuals that may be required to supply information as a beneficial owner or company applicant of several reporting companies.
Important Filing Dates:
- Companies created or registered before 2024, the initial report is due by January 1, 2025
- Companies created or registered in 2024, the initial report is due 90 days after the entity’s creation or registration
- Companies created or registered after 2024, the initial report is due 30 days after the entity’s creation or registration
- Changes to previously reported information must be provided in an updated report within 30 days of the change
The penalties for willfully failing to file both initial and updated reports are $500 per day that the report is late, up to $10,000 and imprisonment for up to two years.
How to File: BOI reports must be filed electronically. FinCEN’s e-filing portal provides two methods:
- Fill out a web-based version of the form and submitting it online, or
- Upload a completed PDF version of the BOI report
Some third-party service providers may also offer the ability to file the BOI report through their software.
For more information, please see this helpful list of frequently asked questions.
Legal Challenge: A federal court in Alabama recently ruled that the Corporate Transparency Act is unconstitutional. At this time, the ruling only applies to the plaintiffs in this case. While there is a possibility for appeal or further legal action, any company that is not a plaintiff in this case is still required to file a BOI at this time.
If you have any questions about these new reporting rules and how they affect your business, please contact us for assistance. If you need assistance filing or have questions about compliance, please consult an attorney. If you need a recommendation regarding legal counsel, our team would be happy to provide one.