Corporate Transparency Act Establishes Expanded Reporting Requirements

The Corporate Transparency Act (CTA), which was enacted by Congress in 2021, will establish a national database of Beneficial Ownership Information (BOI) to crack down on financial crimes such as money laundering or concealment of assets in the US through shell companies. Starting January 1, 2024, any existing, amended, or new corporation, Limited Liability Company, or other entity must file with the Financial Crimes Enforcement Network (FinCEN).

Who will be affected?

The act’s impact is expected to be sweeping and will impact 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. 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.

Who is exempt?

Beneficial owners of a company who are exempt from reporting requirements include:

  • Minors, though the child’s parent or guardian must report their information
  • Those acting as a nominee, intermediary, custodian, or agent on behalf of another
  • Any employee who is not a senior officer
  • An individual whose interest in an entity is only through a right of inheritance
  • Certain creditors.

Twenty-three different types of entities, already in well-regulated industries such as banks, are exempt entirely from this new reporting, a complete list of which can be found here

What will they have to do?

Those determined to be beneficial owners must report to FinCEN information, including full legal name, birthday, current home and business addresses, and a copy of an acceptable identification document, for example, a driver’s license or passport. These reports will be filed electronically through FinCEN online portal Beneficial Ownership Secure System (BOSS). Alterations to information must be updated within 30 days of the change.

What are the penalties?

Failure to comply can result in steep penalties, including a fine of $500 per day, up to $10,000, and up to two years in prison. Beneficial owners and senior officers of the reporting company may also be held responsible.

What should companies do now?

With the stated goal of improving transparency, the CTA is written broadly to encompass all parties with an ownership interest in 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 determining who qualifies for these disclosures and start compiling information now. This process may be lengthy and complex. Please reach out to your advisors at Bowman for more information or with any questions about how the CTA may affect you and your organization.