The Corporate Transparency Act (CTA), which was enacted by Congress in 2021 as part of the Anti-Money Laundering Act of 2020, will establish a national database of Beneficial Ownership Information (BOI) to crack down on financial crimes such as money laundering, terrorist financing, or concealment of assets in the US through shell companies. Starting January 1, 2024, the majority of US small businesses, including any existing, amended, or new corporation, Limited Liability Company, will be subject to new reporting requirements under the CTA and must submit beneficial ownership information with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) on their portal.
The act’s impact is sweeping and will affect nearly every US small business. Compliance will require reporting from any individual who is a “beneficial owner” (anyone having at least 25% ownership or control of the entity) or has “substantial control” of a company. There are many ways by which someone may fall into the category of beneficial owner and, therefore, be required to report. To prepare, companies should begin developing procedures to identify beneficial owners and track any changes in ownership to ensure compliance with reporting requirements.
Who is Required to File BOI Report?
Under the new reporting requirements, any domestic or foreign entity filing with a secretary of state must submit a beneficial ownership report in the FinCEN portal. This includes any corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state.
To comply with new requirements, reporting companies will need to identify themselves and anyone who is considered a”beneficial owner” (those having at least 25% ownership or control of the entity) or has substantial control of a company. Those with substantial control include, but may not be limited to:
- Senior officers
- Anyone with authority to appoint or remove any senior officers or a majority of the board of directors
- Any individual with influence on important decisions made by the reporting company
- Anyone with any form of substantial control over the reporting company, for example, a trustee of a trust
Once a reporting company has identified its beneficial owners, they must report the following information about each: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (such as a state-issued ID or passport) along with an image of the document.
Timing of New Reporting Requirements
The rule will go into force on January 1, 2024. Under FinCEN’s recently proposed amendment to the reporting rule, companies founded or registered after January 1, 2024 will have 90 days after obtaining notice of their creation or registration to file their initial reports. Companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to do so. After their initial filing, companies will have 30 days to report any changes to the information and must correct inaccurate information in previously filed reports within 30 days if they become aware of any inaccurate information in previous filings.
Reports will be submitted in FinCEN’s forthcoming portal, and there will be a fee of approximately $85 to submit an initial BOI report.
Penalties for Violating Reporting Requirements
Companies failing to report required or found to be providing false beneficial ownership information will be subject to harsh penalties, including civil penalties of up to $500 per day that a violation continues, fines of up to $10,000, and imprisonment for a period of up to two years.
To avoid these consequences, companies should prepare proactively by determining who qualifies for these disclosures and compiling information now. This process may be lengthy and complex. Please reach out to your advisors at Bowman & Company for more information or with any questions about how the CTA may affect you and your organization.