On January 1, 2024, the Corporate Transparency Act (CTA) took effect. This new federal anti-money laundering law obligates many corporations, limited liability companies and other business entities to report to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), certain information about the entity, the entity’s beneficial owners and the individuals who created or registered the entity to do business. This client alert summarizes the CTA’s key requirements and deadlines. For more detailed information, please review the official “Beneficial Ownership Information Reporting FAQs” and the “Small Entity Compliance Guide” published by FinCEN.
Frequently Asked Questions
WHO MUST REPORT INFORMATION UNDER THE CTA?
The following “reporting companies” are subject to the CTA’s reporting requirements: (a) any U.S. corporation, limited liability company or other entity created by the filing of a document with a state or territorial government office; and (b) any non-U.S. entity that is registered to do business in any U.S. jurisdiction.
The CTA provides for 23 types of entities that are exempt from its reporting requirements, including companies that currently report to the U.S. Securities and Exchange Commission, insurance companies and tax-exempt entities, among others. Most notably, a company does not need to comply with the CTA if it has more than $5,000,000 in gross receipts for the previous year (as reflected in filed federal tax returns), at least one physical office in the U.S. and at least 20 employees in the U.S. For a full list of exemptions, including helpful checklists, please see Chapter 1.2, “Is my company exempt from the reporting requirements?”, of the Small Entity Compliance Guide.
A subsidiary of an exempt entity also will enjoy exempt status.
WHAT INFORMATION MUST BE REPORTED?
A reporting company is required to report the following information to FinCEN, and to keep the information current with FinCEN on an ongoing basis:
- The reporting company’s full legal name;
- Any trade name or “doing business as” (DBA) name of the reporting company;
- The reporting company’s principal place of business;
- The reporting company’s jurisdiction of formation (and, for non-U.S. reporting companies, the jurisdiction where the company first registered to do business in the U.S.); and
- The reporting company’s Employer Identification Number (EIN).
A reporting company also is required to identify its “beneficial owners” and “company applicant.” A beneficial owner is an individual who either: (a) exercises “substantial control” over the reporting company; or (b) owns or controls at least 25 percent of the ownership interests of the reporting company. A company applicant is an individual who directly files or is primarily responsible for filing the document that creates or registers the reporting company.
A reporting company must report and keep current the following information for each beneficial owner and company applicant:
- Full legal name;
- Date of birth;
- Complete current address;
- Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
a. U.S. passport;
b. State driver’s license; or
c. Identification document issued by a state, local government or tribe.
WHEN ARE REPORTS DUE?
A reporting company that was first formed or registered to do business in the United States before January 1, 2024 will need to file its initial report with FinCEN no later than January 1, 2025.
A reporting company that is first formed or registered to do business in the United States between January 1, 2024 and January 1, 2025 will need to file its initial report with FinCEN within 90 calendar days after the effective date of its formation or registration to do business.
A reporting company that is first formed or registered to do business in the United States on or after January 1, 2025 will need to file its initial report with FinCEN within 30 calendar days after the effective date of its formation or registration to do business.
HOW DOES MY COMPANY FILE REPORTS WITH FINCEN?
Reports must be filed electronically through the BOI E-Filing System. For additional instructions and other technical guidance, please see the Help & Resources page.
WHAT HAPPENS IF MY COMPANY DOES NOT COMPLY WITH THE CTA?
At the time the filing is made, a reporting company is required to certify that its report or application is true, correct, and complete. Therefore, it is the reporting company’s responsibility to identify its beneficial owners and verify the accuracy of all reported information.
A person or reporting company who willfully violates the CTA’s reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues, plus criminal penalties of up to two years’ imprisonment and a fine of up to $10,000.
In the case of an accidental violation – for instance, if an initial report inadvertently contained a typo or outdated information – the CTA provides a safe harbor for reporting companies to correct the original report within 90 days after the deadline for the original report. If this safe harbor deadline is missed, the reporting company and individuals providing inaccurate information may be subject to the CTA’s civil and criminal penalties.
OTHER THAN FILING ACCURATE REPORTS, HOW CAN MY COMPANY STAY COMPLIANT?
A reporting company should consider taking the following actions to facilitate compliance with the CTA’s reporting requirements:
- Amending existing governing documents, such as LLC or stockholder agreements, to require beneficial owners to promptly provide required information and otherwise cooperate in the company’s compliance with the CTA;
- Designating an officer to oversee the company’s initial and ongoing CTA reporting;
- Maintaining, reviewing and updating records on a regular cadence to reflect equity transfers, option grants and other transactions that affect ownership interest calculations; and
- Developing a secure process for collecting and storing a beneficial owner’s photo identification and other sensitive information for CTA reporting purposes.
