Understanding the Corporate Transparency Act: A guide for business owners

The Corporate Transparency Act‡ (CTA) is a newly enacted federal law aimed at combating money laundering, fraud, and other illegal activities by increasing transparency in corporate ownership. As a business owner, it is crucial to understand the implications of this law and the steps required to comply with its provisions.

What is the Corporate Transparency Act?

The CTA, enacted by Congress in January 2021, directs the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to implement new reporting requirements for domestic and foreign entities registered to do business in the United States. The law aims to enhance the disclosure of beneficial ownership information to prevent illegal activities. FinCEN has created an on-line portal for companies to file their BOIR‡.

Who is subject to the new reporting requirements?

All non-exempt US companies, including limited liability companies (LLCs) and corporations, are subject to the new disclosure requirements. Under the CTA, these types of entities are known as “Reporting Companies”. Reporting Companies need to file reports with FinCEN that identify two categories of individuals who are: (i) beneficial owners of the entity, and (ii) company applicants of the entity. Exemptions may apply to certain entities, but it is essential to consult with legal professionals or tax advisors to determine your specific obligations.

Who is a beneficial owner?

Beneficial ownership includes individuals who exercise substantial control over the company, or own or control (directly or indirectly) at least a 25% interest in the company. Substantial control means:

Serving as a senior officer;
Having authority to appoint or remove a senior officer or the board majority; or
Having substantial influence over important decisions.

Who are company applicant(s)?

There are two company applicants:

The individual who directly files the document that creates or registers the Reporting Company;
The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

What entities are exempt from the reporting requirements?

The CTA excludes 23 types of entities—most are already registered or regulated—from reporting. One of the more important exemptions is for large private operating companies (21+ full time employees and $5 million in gross receipts/sales).

What information needs to be disclosed about a beneficial owner?

Under the CTA, Reporting Companies must file and maintain a BOIR with FinCEN. This report includes identifying information for all beneficial owners and company applicants, including:

Full legal name;
Date of birth;
Complete current address; (no agents or P.O. Boxes)
Unique identifying number from a U.S. passport, state ID, driver’s license, or non-expired foreign-issued passport; and
An image of the identification document from which the unique identifier was obtained.

If an individual provides these pieces of information to FinCEN directly, the individual may obtain a “FinCEN identifier number” which can then be provided to FinCEN on a BOIR in lieu of the required information about the individual.

When are you required to file?

For Reporting Companies created prior to January 1, 2024, the Reporting Company has until January 1, 2025, to file its initial BOIR. For Reporting Companies created on or after January 1, 2024, the Reporting Company must file its BOIR within 90 days of: (i) the earlier date on which it receives actual notice of creation, or (ii) a secretary of state first provides public notice of the creation of the entity. Thereafter, if there are any changes in beneficial ownership information, the Reporting Company has 30 days to inform FinCEN of such changes.

Who has access to Reported Information?

Under the CTA, FinCEN will store the BOIR in a secure, nonpublic database referred to as the Beneficial Ownership Secure System (“BOSS”). Reported information in the database will not be made available to the public. However, FinCEN may disclose the reported BOI only if requested by:

U.S. federal agencies engaged in national security, intelligence, or law enforcement activities for use in furtherance of those activities.
A state, local, or tribal law enforcement agency if a court has authorized the agency to seek the information in connection with a civil or criminal investigation.
A federal agency on behalf of a non-U.S. law enforcement agency, foreign prosecutor, or judge.
A financial institution subject to customer due diligence requirements with the consent of the Reporting Company to facilitate the financial institution’s compliance with customer due diligence requirements under applicable law.

What are the next steps for Reporting Companies?

Entities with reporting obligations should carefully review these requirements with its legal and tax advisors. Reporting Companies should consider developing compliance and communication policies, and procedures about beneficial ownership reporting, updating, and periodic monitoring.

What are the penalties for noncompliance?

Noncompliance of the CTA can result in civil penalties of up to $500 per day and up to $10,000. In addition, there could be criminal penalties of imprisonment of up to two years.

The Corporate Transparency Act introduces new reporting requirements for business owners to disclose beneficial ownership information. As a business owner, it is crucial to understand the implications of this law and to take the necessary steps to comply. By identifying your business structure, seeking professional guidance, and gathering company and beneficial owner information, you can ensure a smooth transition to meet the CTA’s requirements. For questions about the CTA and filing the BOI Report, please communicate with your financial team, legal professionals, or tax advisors.

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Disclosure:

This brief summary is for discussion purposes only and should not be relied upon for the implementation of any proposed changes prior to consultation with your independent attorney for legal advice, including specific interpretation of your documents. UMB does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.