Understanding the Corporate Transparency Act:

Shedding Light on Corporate Ownership

January 4, 2024

As part of the Anti-Money Laundering Act of 2020, the Corporate Transparency Act (CTA) went into effect on January 1, 2024. This new law requires most companies currently operating in the United States and most new companies created after January 1, 2024 to file Beneficial Ownership Information (BOI) reports in an online portal called FinCEN. Each existing business has until January 1, 2025 to file its first beneficial ownership information (BOI) report. Entities created in 2024 will have 90 days from the date of formation to file their initial BOI report. Entities created in 2025 or later will have 30 days from the date of formation to file their initial BOI report.

What is the Corporate Transparency Act?

Transparency in corporate ownership has long been a contentious issue, with the lack of information leading to concerns about money laundering, corruption, and illicit financial activities. In a significant stride toward addressing these concerns, the United States introduced the Corporate Transparency Act (CTA) to bring about greater clarity and disclosure in corporate structures. Its primary objective is to combat money laundering, terrorism financing, and other illicit activities by requiring certain corporations and limited liability companies (LLCs) to disclose information about their beneficial owners and controlling officers to the Financial Crimes Enforcement Network (FinCEN).

Key Provisions of the Corporate Transparency Act:

1. Beneficial Ownership Reporting: Companies falling within the scope of the CTA must disclose information about their beneficial owners. The term “beneficial owners” includes owners, senior officers, certain financial investors, and any others exercising control over the company. Companies will need to report the names, addresses, dates of birth, identification numbers, and copies of official identification for each of those individuals.

2. Enhanced Compliance Measures: Stricter compliance measures are in place, with hefty penalties for non-compliance or providing false information. The CTA provides for both civil and criminal penalties (up to $10,000 and two-years’ imprisonment) against a company for failing to report, willfully providing false information, failing to provide complete information, or failing to update information as required.

3. Access to Information: Law enforcement agencies, financial institutions, and federal agencies have access to the beneficial ownership information to conduct investigations and prevent financial crimes.

Who is Required to Comply?

Is your business the type of entity that needs to file a beneficial ownership information (BOI) report?

LLCs & corporations are required to file unless they qualify for an exemption. If you operate a partnership or another type of entity, please contact our firm to verify whether you are required to report.

Does your business qualify for an exemption?

The CTA lists 23 exemptions that may excuse a company from reporting. The majority of these exemptions are based upon the type of business—banks / credit unions, government entities, securities brokers, investment, venture capital, or insurance companies, accounting firms, public utilities, nonprofits, and subsidiaries of an exempt entity are all exempt from reporting. If you think your company may fall into one of these exempt categories, please contact our firm to verify whether you are required to report.

“Large operating companies” that meet the following criteria are exempt: (i) more than 20 full time employees in the US; (ii) an operating presence at a physical office in the U.S.; and (iii) filed a tax return for the previous year showing more than $5 million in gross receipts or sales from U.S. sources.“

“Inactive entities” that meet the following criteria are also exempt: (i) in existence on or before January 1, 2020; (ii) is not engaged in active business; (iii) is not owned by a foreign person; (iv) hasn’t changed owners in the last 12 months; (v) hasn’t sent or received funds in an amount greater than $1,000 in the last 12 months; and (vi) doesn’t hold any assets.

My business doesn’t qualify for an exemption. So what do I need to report?

Existing companies have from January 1, 2024 until January 1, 2025 to file their first beneficial ownership information (BOI) report. Entities created in 2024 will have 90 days from the date of formation to file their initial BOI report. Entities created in 2025 or later will have 30 days from the date of formation to file their initial BOI report. In short, you’ll need to report personal data about every individual who exercises control over the company.

The CTA says I need to report information about the “beneficial owners.” Who does that include?

Determining who needs to be included in the report can be complicated. The language used in the CTA makes it sound like only the owners of the company need to be included in the BOI report, but that is incorrect. Actually, the term “beneficial owner” used in the CTA includes all of the owners, the company’s senior officers, certain types of financial investors, and others as well. If you’re unsure who needs to be included, please contact our firm for help with that determination.

The CTA requires that the following persons be included:

1. every individual who owns 25% of your company’s ownership interests;

2. every individual who controls 25% of your company’s ownership interests—“control” can be direct or indirect and includes indirect influence through another company, a board, a trust, voting power, rights associated with financing, nominees, and control of intermediary entities, or any other contract, arrangement, or relationship;

3. every individual who substantially controls the company by serving as a senior officer, including any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function;

4. every individual who has authority over: (i) the appointment or removal of any senior officer, or (ii) the appointment or removal of the majority of the board of directors (or similar body); and

5. every individual who directs, determines, or has substantial influence over important decisions made by the company, including influence over: the transfer of assets, reorganization of the company, major expenditures, incurrence of debt, business ventures, compensation or incentives for senior officers, signatory authority, company policies or procedures, or any other form of substantial control over the company.

I need to file a report. What do I do next?

1. Decide if you want to file the report with FinCEN yourself or if you want the assistance of a third party, such as our law firm.

2. Determine who needs to be included in the report. Remember that this includes all owners, removed owners, senior officers, and anyone else who exercises substantial control over the company. If you have any questions about who needs to be included, please contact our firm for assistance.

3. Contact each individual to tell them that the Corporate Transparency Act requires your company to report personal information about them to FinCEN. Tell them they have the option to provide the information to the company or to apply to FinCEN after January 1, 2024 for their own FinCEN Identifier.

1. If they elect to provide the information directly to you, you’ll need the individual’s: legal name, date of birth, residential address, identifying number and issuing jurisdiction from a driver’s license, passport, or other authorized document, and an image of that document.

2. If they elect to apply to FinCEN themselves, then they’ll need to provide you with their FinCEN Identifier.

Either way, make sure you have a secure system in place to store personal information.

4. After Jan. 1, 2024, register for a FinCEN account and work with your attorney and CPA to complete the BOI report in the FinCEN portal. Remember, the first report is due by January 1, 2025 for existing entities, within 90 days of formation for entities formed in 2024, and within 30 days of formation for entities formed in 2025 or later.

5. Implement a company policy and procedure to make sure the information you must report will be kept up to date. Both so that it is current when you file your initial report and so that you are able to file the updated reports whenever the formerly reported information has changed.

Don't wait until it's too late—contact the law firm Richards Brandt Miller Nelson today to discuss how we can assist you in complying with the Corporate Transparency Act.

Sincerely,

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Description automatically generatedRichards Brandt Miller Nelson

Steven H. Bergman Matthew C. Barneck Cathy Campbell Alexandria Westover