New Business Reporting Requirements: Corporate Transparency Act

The Financial Crimes Enforcement Network (FinCEN), via its release of its plan to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (the CTA), has added another item to many business owners’ to-do lists. Fortunately, these added responsibilities are not as daunting as they may sound, as the required information is quite basic.

Purpose of the CTA

Part of the Anti-Money Laundering Act of 2020, the CTA aims to collect verifiable identifying information of the beneficial owners of certain types of companies. With this information, FinCEN’s goal is to prevent the establishment of shell/front companies, thus attempting to prevent illegal activities that bad-faith actors try to disguise as legitimate business activities.

What information will you be required to report?

This is the easy part. FinCEN requires nonexempt companies to report certain identifying information for each of its beneficial owners. Hint: most small businesses will be nonexempt and required to submit information (see below).

A “beneficial owner” is defined as any and all individuals who, directly or indirectly, either (1) exercise substantial control over the company; or (2) control 25% or more of the company’s ownership interests. To get a better grasp of what “substantial control” means, the following three examples should be considered: (a) if the individual serves as senior officer of the company; (b) if the individual may appoint and remove senior officers of the company and/or board members; and (c) if the individual is able to substantially influence the company’s important matters (e.g., providing direction for the company, making important decisions for the company, etc.).

So, what specific information must be reported? For each of the company’s beneficial owners, you will be required to report the full legal name (or the proper entity name of the business), the address (either the business address or the residential address is acceptable), and a unique identifying number from an “acceptable” official document (collectively, “Beneficial Ownership Information,” or “BOI”).

If the BOI relates to an individual, “acceptable” official documents could include documents like driver’s licenses or passports. For business entities, Taxpayer Identification Numbers or Legal Entity Identifiers could be good examples.

Who is required to report Beneficial Ownership Information?

To answer this question, it is simpler to list who is exempt from reporting, as essentially all other companies will have to report, regardless of whether the company was formed in the US or abroad, and even if the company has technically not yet been formed (i.e., a company for which a formation application has been submitted, but has still yet to be formed).

Broadly speaking*, companies exempt from reporting BOI under the CTA include:

securities issuers; domestic governmental authorities; banks; domestic credit unions; a bank holding company, holding company, or a savings and loan holding company of the Homeowners’ Loan Act; money transmitting businesses; brokers or securities dealers; securities exchange or clearing agencies; other Securities Exchange Act of 1934 entities; registered investment companies and advisers; venture capital fund advisers; insurance companies; state-licensed insurance producers; commodity exchange act registered entities; accounting firms; public utilities; financial market utilities; pooled investment vehicles; tax exempt entities; entities assisting tax exempt entities; subsidiaries of certain exempt entities; inactive businesses; entities that, via written concurrence, the Secretary of Treasury, the Attorney General, and the Secretary of Homeland Security has, by regulation, determined should be exempt; and the most likely exemption for our readers large operating companies (i.e., companies that (1) employ more than 20 employees on a full-time basis in the US; (2) filed Federal US income tax returns in the previous year that showed more than $5,000,000 in gross receipts or sales; (3) operate from physical premises in the US (they must own or lease the office space, the space cannot be a personal residence, and they can’t share the space with anyone other than affiliated entities))

When will you be required to report this information?

This depends on the age of your company. As the CTA relies on further rules and regulations for its implementation, the effective date of FinCEN’s final rule implementing the CTA’s BOI reporting provisions (i.e., January 1, 2024) will be the determinative date.
But how does this implementation date interact with your company’s founding date? It all depends on whether your company was founded before or after January 1, 2024. If your company was founded before January 1, 2024, you will have 1 year from said date to report all necessary BOI information (i.e., until January 1, 2025). If you were formed on or after January 1, 2024, you will have 30 days from the day you received notice that the company was successfully formed.

*Please note: these are generalized terms/summaries of the exempted entity types, and each one is further defined in the CTA. If you are unsure whether your entity is exempt, or you have any other questions about complying with the requirements under CTA, reach out to the attorneys at Full Circle Business Law to make such a determination.

Written by Ian Davis, associate attorney with Full Circle Business Law, PC


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