An Overview of the Corporate Transparency Act and Beneficial Ownership Disclosure Requirements
If you operate a business, it’s essential to familiarize yourself with the Corporate Transparency Act (CTA) and the new Beneficial Ownership Reporting requirements.
Grasping the Corporate Transparency Act (CTA)
The Corporate Transparency Act mandates that certain businesses disclose details about individuals who have significant control or ownership of the company. This measure aims to combat illegal activities such as money laundering and fraud by identifying the true owners and operators of businesses.
A critical part of this requirement is the Beneficial Ownership Information (BOI) report, which must be submitted to the Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Department of Treasury. Under the CTA, a “beneficial owner” is defined as anyone who:
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Owns 25% or more of the company, or
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Holds substantial control over the company’s decision-making processes.
Determining Whether Your Business Must File
There are two main categories of businesses that are obligated to file under the CTA:
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Domestic Reporting Companies: U.S.-based entities like corporations, LLCs, or other businesses formed through state filings.
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Foreign Reporting Companies: Companies formed outside the U.S. but legally registered to operate within the country.
Most small businesses will be required to file. However, there are exemptions for certain organizations such as banks, credit unions, large corporations, and insurance companies. A total of 23 exemptions exist, so businesses should carefully review the list to see if they need to comply.
Filing Deadlines and Criteria
Meeting deadlines is crucial to avoid fines and penalties. Filing requirements vary depending on when your business was established:
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Existing Businesses: If your business was created before January 1, 2024, your BOI report must be filed by January 1, 2025.
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New Businesses: Companies formed in 2024 must submit their BOI report within 90 days after receiving public notice of their official formation.
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Future Businesses: For companies registered after January 1, 2025, the report is due within 30 days of registration.
After submission, businesses do not need to file updates annually. However, if there are significant changes in beneficial ownership or if corrections are required, an updated BOI report must be submitted. There is no need to report the dissolution or termination of a company.
Information Needed for the BOI Report
The BOI report requires critical details about the beneficial owners to ensure transparency. This includes:
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Full legal name
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Date of birth
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Current residential address
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A unique identification number (e.g., passport or driver’s license number)
These details help the government maintain accurate, up-to-date records on individuals who control U.S.-based business entities.
Filing the Report
Filing the BOI report is simple and free of charge. The process can be completed electronically through FinCEN’s secure website (www.fincen.gov/boi).
Penalties for Non-Compliance
Failure to comply with the CTA can result in severe consequences, including:
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Civil Penalties: Fines of $500 per day, up to $10,000.
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Criminal Penalties: Up to two years in prison for willful violations.
These penalties may also apply to senior company executives, who could be held personally liable for their company’s non-compliance.
Resources and Warnings
To assist businesses, FinCEN has created a Small Entity Compliance Guide, offering detailed instructions and answering common questions. Additional resources, such as instructional videos, webinars, and direct contact options, are available on FinCEN’s website.
Be cautious of scams—FinCEN never requests BOI information through unsolicited calls or emails. If you receive unexpected communications asking for your business details, exercise extreme caution.
