NOTE: FinCEN has not finalized reporting procedures of this new law; information below accurate as of 1/22/24.
Watch our short video above on how the Corporate Transparency Act could affect your small business.
The Corporate Transparency Act (CTA) was enacted as part of the Anti-Money Laundering Act of 2020, which was implemented to buckle down on illegal activity such as corruption, money laundering, terrorist financing and tax fraud. The Act will require certain entities to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This report identifies the entities’ beneficial owners and includes identifying information about those individuals. The Act further authorizes FinCEN to disclose this information to certain government authorities and to financial institutions for select purposes. Failure to comply may result in significant penalties, so it is critical for business owners to understand whether the CTA applies to them and the scope of reporting under the CTA.
Businesses with less than 21 full-time employees and less than $5M in annual gross receipts or sales.
A business is defined as a legal entity, which includes any corporation, limited liability company, family limited partnership, and limited liability limited partnership that you own, or have any direct or indirect control of, regardless of whether the legal entity is currently active or conducting business of any kind. One who controls a legal entity under the current Act includes for corporations, shareholders, directors and officers, for limited liability companies, members and managers (and if the limited liability company has officers such as CEO, CFO, COO, President, Vice President, Secretary and/or Treasurer), and for limited partnerships, family limited partnerships, limited partnerships and limited liability limited partnerships, general and limited partners (and if the limited liability company has officers such as CEO, CFO, COO, President, Vice President, Secretary and/or Treasurer).
Note that family limited liability companies created for estate planning purposes holding securities and passive assets are included in the definition above.
For the above-mentioned entities, the CTA will require company information including full legal name (and any trade names), address, jurisdiction of formation, and taxpayer identification number (or equivalent issued by a foreign jurisdiction). Additionally, FinCEN requires submission of identifying information about any beneficial owners.
A beneficial owner is defined as any individual who fulfill at least one of the following:
exercises substantial control over the entity
controls 25% or more of the ownership interests of the entity
who receives substantial economic benefits from the assets of the entity
Trustees of Trusts that own companies are considered beneficial owners.
The beneficial ownership information (BOI) that will be required for each owner includes:
Full legal name
Date of birth
Current residential address
Copy of photo ID, such as a Driver’s License
Changes to any information generally must be updated within 30 days after the change occurs or after the date the company became aware of an inaccuracy.
On September 18, 2023, FinCEN published its Small Entity Compliance Guide. The guide does not create any new requirements, rather it provides a detailed summary of how the BOI reporting rule works, particularly with respect to which types of companies are subject to the reporting rule, how the 23 categories of exemptions operate, and how to identify beneficial owners of a reporting company.
FinCEN issued a final rule on November 29, 2023 that extends the deadline for certain reporting companies to file their initial beneficial ownership information (BOI) reports with FinCEN. Reporting companies created or registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports. Reporting companies created or registered before January 1, 2024, will continue to have until January 1, 2025, to file their initial BOI reports with FinCEN, and reporting companies created or registered on or after January 1, 2025, will continue to have 30 calendar days to file their initial BOI reports with FinCEN.
Affected entities may consider whether it is appropriate to develop processes to determine whether the reporting rule applies and to address whether newly created entities (e.g., subsidiaries, special purpose vehicles) are subject to the reporting rule. Newly formed companies, and persons or entities that are involved in or create such companies – such as entrepreneurs, venture funds and other investors and investment vehicles, law firms, and corporate services firms – also may need to develop processes to address BOI reporting rule requirements.
Reports – and updates – are required to be submitted through FinCEN's e-filing system.
For more information regarding the new law and its requirements, please visit the FinCEN website: https://www.fincen.gov/boi