The Corporate Transparency Act (CTA) introduces new requirements that impact many U.S. and foreign entities doing business in the United States. As part of the U.S. government’s effort to increase transparency in corporate structures and prevent illicit financial activities, the CTA mandates reporting of Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN).
In this blog, we will provide a comprehensive overview of the BOI reporting requirements, exemptions, and the critical deadlines for compliance.
What is Beneficial Ownership Information (BOI) Reporting?
The BOI reporting rule requires certain business entities to disclose their ownership and control structure to FinCEN. The objective is to prevent financial crimes such as money laundering, terrorist financing, and tax evasion by shedding light on the real owners or controllers behind companies operating in the U.S.
Entities that are required to report must disclose identifying information about their beneficial owners, who are individuals that either control or own at least 25% of the entity.
Who Must Report?
The CTA categorizes entities into two groups that are subject to BOI reporting:
- Domestic Reporting Companies: This includes U.S.-based entities, such as corporations, limited liability companies (LLCs), and other similar entities created by filing formation documents with a state or tribal government.
- Foreign Reporting Companies: Entities formed under the laws of a foreign jurisdiction but registered to do business in the U.S. also fall under this reporting requirement.
Exempt Entities
While many entities must comply, the CTA provides 23 exemptions from the BOI reporting rule. These exempt entities generally include companies already heavily regulated by the government or those unlikely to pose significant risks of money laundering or illicit activity.
The following are exemptions:
- Securities Reporting Issuer: Entities registered under the Securities Exchange Act of 1934 and required to file reports with the SEC.
- Governmental Authority: Entities established under the laws of the U.S., a state, or a political subdivision exercising governmental authority.
- Bank: Entities defined as banks under federal law (e.g., Federal Deposit Insurance Act).
- Credit Union: Federal or state credit unions.
- Depository Institution Holding Company: Entities defined as bank holding companies or savings and loan holding companies.
- Money Services Business: Entities registered as money transmitters or money services businesses with FinCEN.
- Broker or Dealer in Securities: Entities registered under the Securities Exchange Act as brokers or dealers.
- Securities Exchange or Clearing Agency: Entities that are securities exchanges or clearing agencies, as defined by the Securities Exchange Act.
- Other Exchange Act Registered Entity: Entities registered with the SEC but not covered under other exemptions (e.g., securities exchanges).
- Investment Company or Investment Adviser: Entities registered under the Investment Company Act or the Investment Advisers Act of 1940.
- Venture Capital Fund Adviser: Entities exempt under section 203(l) of the Investment Advisers Act.
- Insurance Company: Entities defined as insurance companies under the Investment Company Act of 1940.
- State-Licensed Insurance Producer: Entities authorized to operate as insurance producers with a physical presence in the U.S.
- Commodity Exchange Act Registered Entity: Entities registered with the Commodity Futures Trading Commission, such as futures commission merchants and swap dealers.
- Public Accounting Firm: Entities registered under the Sarbanes-Oxley Act as public accounting firms.
- Public Utility: Entities defined as regulated public utilities under the Internal Revenue Code.
- Financial Market Utility: Entities designated by the Financial Stability Oversight Council under the Payment, Clearing, and Settlement Supervision Act of 2010.
- Pooled Investment Vehicle: Investment vehicles defined under the Investment Company Act and operated or advised by exempt entities (e.g., banks, brokers).
- Tax-Exempt Entity: Entities described in section 501(c) of the Internal Revenue Code (e.g., charities) that are tax-exempt.
- Entity Assisting a Tax-Exempt Entity: Entities operating exclusively to support tax-exempt entities.
- Large Operating Company: Entities with more than 20 full-time U.S. employees, over $5 million in gross receipts, and a physical office in the U.S.
- Subsidiary of Certain Exempt Entities: Entities controlled or wholly owned by exempt entities, such as banks or securities issuers.
- Inactive Entity: Entities in existence before January 1, 2020, that are not engaged in active business, have no foreign ownership, and meet certain inactivity criteria (e.g., no significant transactions).
What Needs to Be Reported?
For entities subject to the BOI reporting rule, the following information must be submitted to FinCEN:
1. Company Information
- Legal name of the company
- Any trade or “doing business as” names
- Principal business address
- Taxpayer identification number (TIN) or employer identification number (EIN)
2. Beneficial Owners
- Full legal name
- Date of birth
- Residential address (not a business address)
- A scanned copy of a government-issued ID, such as a driver’s license or passport
The CTA defines a beneficial owner as any individual who:
- Exerts substantial control over the reporting company (e.g., senior officers or individuals who have significant decision-making authority).
- Owns or controls at least 25% of the company’s ownership interests (such as shares, voting rights, or equity).
3. Company Applicants
For entities formed after January 1, 2024, the individuals who submit the company’s formation documents must also be reported, providing their name, date of birth, and a government-issued ID.
Reporting Deadlines
It is crucial for entities to understand the deadlines for compliance with the BOI reporting requirement.
- Companies created before January 1, 2024 must submit their initial BOI report by January 1, 2025.
- Companies formed in 2024 must file their BOI report within 90 days of formation.
- Companies formed after January 1, 2025 must file their BOI report within 30 days of formation.
Furthermore, if there are any changes to the company’s beneficial ownership or control structure, updates must be reported to FinCEN within 30 days.
How to Submit BOI Information
All BOI reports must be filed electronically through FinCEN’s secure online portal. This system is designed to protect sensitive information, and access is restricted to authorized users such as law enforcement and government agencies.
Consequences of Non-Compliance
Failing to comply with the BOI reporting requirements can result in significant penalties. These penalties include:
- Civil penalties: Up to $500 per day for each day the report is late or incomplete.
- Criminal penalties: Fines of up to $10,000 and/or imprisonment for up to two years for willfully providing false or fraudulent information.
Protecting Privacy
FinCEN takes privacy seriously and will store the BOI data in a highly secure database. The information will only be accessible to authorized users, including law enforcement and other government authorities, in line with the CTA’s aim to prevent misuse of the data.
Conclusion
The BOI reporting rule under the Corporate Transparency Act represents a significant step toward increasing corporate transparency and combating financial crimes. Entities subject to these requirements should ensure that they are prepared to comply with the deadlines and obligations set by the CTA.
If you believe your entity may be subject to the BOI reporting rule or have questions about your reporting obligations, feel free to contact us. We can assist you in navigating these new regulations and ensure compliance to avoid penalties.
Stay informed, stay compliant!
More information can be found at BOI Small Business Compliance Guide.