Effective January 1, 2024, the Corporate Transparency Act (CTA) initiated a new era of disclosure and transparency for businesses. This legislation, geared towards combating financial crimes and enhancing national security, holds significant implications for small business owners. In this article, we will delve into the purpose of the Corporate Transparency Act (CTA), explore who needs to file a Beneficial Ownership Information (BOI) report, and provide crucial details on reporting requirements, timelines, exemptions, penalties, and avenues for assistance.
Purpose of the Corporate Transparency Act
Enacted in 2021 to address concerns related to money laundering, terrorism financing, and other illicit activities, the CTA aims to enhance transparency in corporate structures. By mandating businesses to disclose information about their beneficial owners through the BOI report, the legislation seeks to deter the misuse of companies for criminal purposes. Small business owners, often unfamiliar with the intricacies of such regulations, need to understand how the CTA affects them, as non-compliance could result in criminal or civil penalties.
Who needs to file a BOI report?
Under the CTA, reporting companies, both domestic and foreign, are mandated to submit beneficial ownership information to the Financial Crimes Enforcement Network (FinCen). Domestic reporting companies are corporations, LLPs, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Foreign reporting companies are a corporation, LLCs, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Sole-proprietorships that don’t use a single-member LLC are not considered a reporting company.
Who is considered a beneficial owner?
A beneficial owner is an individual who directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests. This definition aims to uncover the individuals pulling the strings behind a business, ensuring that their identities are brought to light.
What information needs to be submitted?
The details to be included in the BOI report depend on the establishment date of the business. For those registered or established post-January 1, 2024, the report must encompass the names, addresses, birthdays, and identification numbers of beneficial owners and company applicants. Additionally, information such as legal name, trademarks, U.S. address, taxpayer identification number, and the jurisdiction of formation or registration must be provided for all reporting companies.
In a recent article by the CO, Roger Harris, president of Padgett Business Services, explains, “In addition to the required initial filing, there are requirements to update the original filing when things change. Some of the things that require an updated filing are not things a business owner has ever thought were important to track, and the timeline to report these changes can be as short as 30 days.”
He also mentions, “If you make changes in the operation and delegation of duties within your business that could be considered to give a new person substantial control of your business, you could be required to update your filings, even if the person performing those duties did not own any of the business.”
Timeline for Reporting
Per FinCen, the dates below are when you need to file:
- If your company was created or registered prior to January 1, 2024, you will have until January 1, 2025, to report BOI.
- If your company was created or registered on or after January 1, 2024, and before January 1, 2025, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier.
- If your company was created or registered on or after January 1, 2025, you must file a BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
- Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 days.
Who is exempt from filing?
While compliance is essential, certain entities are exempt from filing BOI reports. There are 23 types of exempt entities, and a comprehensive table can be accessed through this link.
What penalties would individuals face for violating BOI filing requirements?
According to the CTA, individuals found willfully violating the BOI reporting requirements may face civil penalties of up to $500 for each day the violation persists. Additionally, they may be subject to criminal penalties, including imprisonment for up to two years and a fine of up to $10,000. FinCen states that “potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information”.
Both individuals and corporate entities can be held liable for willful violations. Read more here.
Getting help with BOI reports
While businesses may choose to file their own BOI reports, seeking professional guidance is advisable. Roger Harris emphasizes the importance of consulting knowledgeable advisors, such as attorneys or accountants, to ensure accurate and timely filings. While some issues may require legal interpretation, straightforward cases may be handled by accountants or tax preparers, provided they offer services in this domain. Harris cautions against choosing firms without expertise and recommends verifying their legitimacy and reasonable fees.
In conclusion, small business owners navigating the complexities of the Corporate Transparency Act can benefit from understanding the legislation’s purpose, filing requirements, exemptions, and seeking professional assistance when needed. By embracing transparency, businesses contribute to a more secure and accountable corporate landscape.