As of January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act (CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as BOI) of certain entities from people who own or control a company. The intent of the BOI reporting requirement is to help U.S. law enforcement combat money laundering, the financing of terrorism, and other illicit activity.
The information below is general only and shouldn’t be applied to your specific facts and circumstances without consultation with legal counsel and/or other retained professional advisers.
What entities are required to comply with the CTA’s 801 reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs), or any similar 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.
Notably, domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs, or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
Yes. There are 23 categories of exemptions. Included in the exemptions list are:
- Publicly traded companies
- Banks and credit unions
- Securities brokers/dealers
- Public accounting firms
- Tax-exempt entities
- Certain inactive entities, among others
Please note these are not blanket exemptions—many of these entities are already heavily regulated by the government and thus already discloses BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return
- Be physically present in the U.S.
Who is a “beneficial owner”?
A beneficial owner is any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least twenty-five percent (25%) of the ownership interests of a reporting company.
An individual has “substantial control” of a reporting company if he or she directs, determines, or exercises substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.
When must companies file?
There are different filing time frames depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information. Timeframes are as follows:
- New entities (created/registered in 2024) – must file within 90 days of the registration date
- New entities (created/registered after 12/31/2024) – must file within 30 days of the registration date
- Existing entities (created/registered before 1/1/24) – must file by 1/1/25
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports – must file within 30 days of such changes or discovery
What sort of information is required to be reported?
Companies must report the following information:
- Full name of the reporting company
- Any trade name or “doing business as” (DBA) name
- Business address
- State or tribal jurisdiction of formation
- IRS taxpayer identification number (TIN)
Additionally, information on the beneficial owners of the entity, and for newly created entities, the company applicants of the entity is required. This information includes:
- Name
- Date of birth
- Address
- Unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day for each violation, up to $10,000, and/or imprisonment for up to two years.
It cannot be emphasized enough the importance of establishing internal procedures to comply with the requirements from the outset, as described above, and to identify changes or inaccuracies throughout the year, and report as required.
Questions? Contact Integrated Law
The team at Integrated Law can counsel you on next steps and how to develop a compliance plan to avoid the significant penalties for non-compliance. Please contact us to schedule a review.