A new federal law requires most legal entities to report specific information about the business and its owners. This article provides multiple updates that warrant business owners’ attention.

The CTA is a provision of the Anti-Money Laundering Act, which is part of a federal effort to combat shell corporations, LLCs and other entities that engage in illegal money laundering and other criminal financial activities.

This article provides a general overview and multiple updates from our September 2023 article. This version includes the following changes:

Does my business have to file a report?



It probably does. Entities required to submit a “Beneficial Ownership Information Report” (BOIR) include LLCs, most corporations, most partnerships, certain types of trusts, and more. An entity required to submit a BOIR is termed a “reporting company.”


For purposes of the CTA, a reporting company is defined as “a corporation, limited liability company or other similar entity that is created by the filing of a document with a secretary of state or similar office under the law of a state, or formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state.”

Under that broad description, a legal entity that (a) is created or authorized to operate by filing papers with a state agency and (b) is separate from the owner(s) must comply with the CTA’s reporting requirements.

Are there exceptions?






Sole proprietorships are not required to report. Also, many types of trusts and some types of partnerships are generally excused from the reporting requirement (check with your attorney).




In addition, the CTA provides a list of



23 “exempt entities”



– mostly larger companies in regulated industries, such as banks, insurance companies, SEC-registered companies, utilities, many 501(c) tax-exempt organizations, etc.




If your entity does not qualify for one of the exemptions, you should plan to comply with the new law.



Inactive entities.



The list of exemptions includes, at #23, “Inactive entity.” Qualifying for inactivity requires specific criteria that you can view in the FinCEN FAQ document at



www.fincen.gov/boi-faqs#L_2


.





What has to be reported?



The required information about the reporting company and its beneficial owners is detailed in the submission portal described below.

For the reporting company, the required information is relatively simple, such as:

  • legal name;

  • trade names or DBAs, if any;

  • physical address;

  • jurisdiction of formation (e.g., Arizona); and

  • Employer Identification Number (EIN), also known as the federal tax identification number.

Owner Information.



The reporting company must also provide specific information about (a) the “company applicant” (i.e., the individual who filed the application to form the legal entity) and (b) each of the reporting company’s “beneficial owners” (described below). For each of those individuals, the report must include his or her:


  • name;

  • date of birth;

  • home or business address; and

  • a unique identifying number from an acceptable identification document, such as a passport, along with an image of that identification document.

    


What is a “beneficial owner”?



The government defines a “beneficial owner” as “a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise”:


  • exercises “substantial control” over the entity;

  • owns 25% or more of the equity interests of a corporation or limited liability company; or

  • receives substantial economic benefits from the assets of a corporation or limited liability company.

An individual will be considered to have “substantial control” of a reporting company if he or she:





  • serves as a senior officer;

  • has authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar governing body);

  • has direction, determination or decision of, or substantial influence over, important matters; or

  • has another form of involvement that could be reasonably construed as “substantial control.”

When do we have to file?

  1. If your reporting company was in existence before January 1, 2024, you have until December 31, 2024, to file your initial report.

  2. If your reporting company is created during 2024, it must file its initial report within 90 calendar days after (a) the date on which the entity received actual notice that its creation or registration is effective, or (b) the date after the state first provides public notice of the entity’s creation or registration.

  3. For a reporting company created on or after January 1, 2025, the 90-calendar-day period mentioned above is reduced to 30 calendar days.

How do we file our report?



Reports must be filed online, using the non-public, cloud-based portal maintained by FinCEN. See “File the Beneficial Ownership Information Report (BOIR)” at



https://boiefiling.fincen.gov/fileboir


.

What if we don’t file a report?



Failure to file, on time, can be costly. “Willful” violations of the Corporate Transparency Act can carry civil penalties (e.g., $500/day for each day past a deadline) and, in some cases, criminal liability (up to $10,000 in fines and up to two years in prison).


How often do we have to file?



Subsequent filings may be the riskiest and most burdensome issue for many businesses.


While filing your initial report doesn’t seem too difficult, the trick is that every time something in your report changes, you have to file another report.

For all reporting companies, any change to a previously filed report must be reported to FinCEN within 30 days of the change.

Get Ready

While the December 31, 2024, reporting deadline for businesses formed prior to 2024 seems like the distant future, it’s not too soon to start gathering the required information, especially if your business has multiple owners and/or multiple entities, or if you contemplate creating a new entity this year.

At the very least, make it the job of someone in your company to look further into the Corporate Transparency Act’s requirements and prepare a timeline and procedures that will help you comply with the new law.

If you have any questions about the CTA or related matters, please contact your business’s accountant or attorney.