Corporate Transparency Act

What is the Corporate Transparency Act?

The Corporate Transparency Act took effect on January 1, 2024. This legislation, which Congress passed in 2021, requires certain businesses to disclose shareholder and “Ultimate Beneficial Owner” information to the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Failure to do so could lead to daily $500 fines or two years of jail time for applicable business owners.

The Corporate Transparency Act aims to increase transparency around corporate ownership in an effort to prevent financial crime including money laundering and tax evasion. With the introduction of the Corporate Transparency Act, it will now be easier for government bodies to find information about business owners, increase corporate due diligence, and ultimately introduce more transparency around corporate ownership.

What companies does the Corporate Transparency Act impact?

Reporting companies include domestic and foreign corporations, limited liability companies, or other similar entities that are formed or registered to do business in any US jurisdiction and do not qualify for an exemption.

Companies are required to report to FinCEN:

• Full legal name
• Any “DBA” names
• Principal place of business in the US
• Jurisdiction of formation (or jurisdiction of first registration if a foreign reporting company)
• IRS Taxpayer Identification Number (TIN) or FEIN (or, if a foreign reporting company, tax ID issued by a non-U.S. jurisdiction)

Individuals who either exercise “substantial control” over a reporting company or own or control at least 25% of the reporting company’s ownership interests are considered “beneficial owners” for purposes of the Corporate Transparency Act.

Corporate Transparency Act: how to file 

The individual who files the document that registers a foreign entity to do business in the US or who files the document that forms a domestic entity is considered a Company Applicant. The individual who instructs or directs the formation or registration of an entity is also considered a Company Applicant.

Reporting companies will need to file a Beneficial Ownership Information (BOI) Report to FinCEN consisting of the following information for each beneficial owner:

• Name
• Date of birth
• Address
• A government-approved ID number

Reporting companies formed or registered in the US on or after January 1, 2024, will be required to report Company Applicant information to FinCEN consisting of the same Personal Identifiable Information (PII) as is required above for beneficial owners.

Instead of disclosing PII to reporting companies, beneficial owners and company applicants can apply for a FinCEN Identifier which they can use to identify the individual without their PII.

When are the filing deadlines? 

Deadlines for filing your BOI differ depending on when your business was formed. If you formed your business before January 1, 2024, you have until January 1, 2025, to file. However, new businesses formed on or after January 1, 2024, have 90 days to file, and businesses registered or created on or after January 1, 2025, will only have 30 days to file.

Corporate Transparency Act exemptions

Some types of business entities do not need to file a BOI report. Currently, the following business types are exempt from complying with the Corporate Transparency Act:

• Accounting firm
• Bank
• Broker or dealer in securities
• Credit union
• Depository institution holding company
• Entity assisting a tax-exempt entity
• Entity registered under the Commodity Exchange Act
• Entity registered under the Securities Exchange Act of 1934
• Financial market utility
• Governmental authority
• Inactive entity
• Insurance company
• Investment company or investment adviser
• Large operating company
• Money services business
• Pooled investment vehicle
• Public utility
• Securities exchange or clearing agency
• Securities reporting issuer
• State-licensed insurance producer
• Subsidiary of certain exempt entities
• Tax-exempt entity
• Venture capital fund adviser

Entity management is important to ensure your company complies with the Corporate Transparency Act. For multi-state or multi-national companies, intricate corporate structures can lead to disjointed data and management issues that could result in reporting issues. Smaller companies also may lack the processes to accurately track and report this information.

 

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