Overview of the Corporate Transparency Act and Beneficial Owner Information Report
Starting on January 1, 2024, the federal Corporate Transparency Act requires that the vast majority of legal entities formed or registered in the United States will have to submit Beneficial Ownership Information (BOI) reports to the US Treasury’s Financial Crimes Enforcement Network (FinCEN).
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is a law enacted by Congress at the end of 2020 as part of a global effort to prevent individuals from using legal entities to facilitating money laundering, finance terrorist activities and other financial crimes, by creating a national registry of beneficial ownership information for “reporting companies.” The law specifically targets small businesses, and requires that business owners understand and comply with all parts of the law, with heavy fines and imprisonment for those who do not provide the required information within the deadlines.
Who Is Impacted?
The CTA defines a “reporting company” as any business entity that is formed by filing with the Secretary of State or similar office. There are 23 exemptions to what is considered a reporting company, including stock exchanges, insurance companies, public accounting firms and “large operating companies,” which are companies which have more then 20 full-time employees, operations inside the US, and reported gross income exceeding USD $5 million on the previous year’s federal tax return. If not exempt, a company is considered to be a reporting company, and must comply with the CTA by filing a Beneficial Owner Information (BOI) Report.
To learn more about exemptions, check out our Corporate Transparency Act Exemptions page for more explanation.
It also applies to any business entity formed outside the United States which has registered to do business with the Secretary of State (or equivalent) in any US state, with few exceptions.
What Has To Be Reported?
Initial BOI reports for newly-formed entities (on and after January 1, 2024) must include information about the entity, the beneficial owner(s), and the company applicant(s). Entity Information to be reported:
- Legal name
- Any trade names, “doing business as” (d/b/a) or “trading as” (t/a) names.
- The current street address of its principal place of business if that address is in the United States, or for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts its business in the United States (for example, a foreign reporting company’s U.S. headquarters).
- Its jurisdiction of formation or registration.
- Its Employer Identification Number (EIN) or Taxpayer Identification Number.
Each Beneficial Owner and Company Applicant:
- The individual’s name
- For beneficial owner: residential address
- For company applicant: business address
- An identifying number taken from an acceptable identification document such as a state-issued driver license or passport.
- Date of birth
- A scanned copy of the identity document
However, if any beneficial owner or company applicant has applied for and received a FinCEN identification number, then that number can be used instead of providing all the other information. Business entities existing as of January 1, 2024 will have one year to file their BOI reports, but will not have to submit company applicant information.
A beneficial owner is any individual who, directly or indirectly:• Exercises substantial control over a reporting company;• OR •Owns or controls at least 25 percent of the ownership interests of a reporting company. An individual might be a beneficial owner through substantial control, ownership interests, or both. Reporting companies are not required to report the reason (i.e., substantial control or ownership interests) that an individual is a beneficial owner. A reporting company can have multiple beneficial owners. An individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company. There is no limit to the number of individuals who can be reported for exercising substantial control. Although the law says that anyone who “owns or controls more than 25%,” the government is not good at math, and there can be far more than four beneficial owners. For each entity there can be many beneficial owners, but there must be AT LEAST ONE. Even if there are no owners with more than 25% (for example, an entity with 5 equal partners), at least one person must be on record as the beneficial owner unless the entity qualifies for an exemption.
A “company applicant” is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company. To be clear, a “company applicant” is an individual, not a company. If an entity was filed by company formation agent, then at least one company applicant is the individual at that company who actually filed the company. There are two categories of company applicants – the “direct filer” and the individual who “directs or controls the filing action.”
- The first category (direct filer) must be identified by all reporting companies that have a company applicant reporting requirement.
- The second category (directs or controls the filing action) may not be applicable to all reporting companies that have a company applicant reporting requirement. The second category of company applicants is only required to be reported when more than one individual is involved in the filing of the document that created or first registered the company.
- If more than one individual is involved in the filing, then two company applicants must be reported.
- No reporting company will have more than two company applicants. For companies in existence before January 1, 2024, Company Applicant information is not required to be submitted. Only companies formed or registered on or after January 1, 2024 must provide company applicant information.
Important Dates and Deadlines for Filing BOI Reports
If a reporting company is in existence on or before December 31, 2023, the company has until December 31, 2024 to file its BOI Report.If a reporting company comes into existence between January 1, 2024 and December 31, 2024, then the company has 90 days from the date of formation to file its BOI Report.If a reporting company comes into existence after January 1, 2025, then the company has 30 days from the date of formation to file its BOI Report. If information about a reporting company changes, or if the company discovers the information submitted in its BOI Report is incorrect, the company has 30 days to submit a revised report.
The law is very harsh regarding the late or inaccurate filing of BOI Reports. There are civil and criminal penalties for willful failure to file on time, up to $500 per day (with a maximum of $10,000) plus imprisonment for up to two years.
There are no government fees to file the forms.
How To File Beneficial Ownership Information Reports
The form to report BOI Reports is not yet available. Once available, information about the form will be posted on the FinCEN Beneficial Ownership Information Page.
Where To Learn More
FinCEN has prepared a Small Entity Compliance Guide on its site at fincen.gov/boi/small-entity-