Small Business Alert: Complying with the Corporate Transparency Act

Starting January 1, 2024, many companies will be required to report information to the U.S. government about who ultimately owns and controls them. That identifying information is known as beneficial ownership information (BOI) and is part of the Corporate Transparency Act (CTA).

They will have to report the information to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury.

Why is this taking place now?
In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law creates a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from ill-gotten gains made through shell companies or other opaque ownership structures.

Which companies are required to report?
Companies required to report are called reporting companies. There are two types of reporting companies:

• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Which companies are NOT required to report?
FinCEN’s Small Entity Compliance Guide includes a table and checklists for each of the 23 exemptions that may help determine whether a company meets an exemption (see Chapter 1.2, “Is my company exempt from the reporting requirements?”). Companies should carefully review the qualifying criteria before concluding that they are exempt.

What is the process for filing?
Each reporting company will be required to submit a BOI report. The form to report beneficial ownership information is not yet available. Once available, information about the form will be posted on FinCEN’s webpage about BOI. There is no charge to file.

Most reporting companies will be able to submit their beneficial ownership information to FinCEN on their own using guidance FinCEN has issued.

What is the deadline?
No one needs to report anything until Jan. 1, 2024. A reporting company created or registered to do business before January 1, 2024 will have until January 1, 2025 to file its initial beneficial ownership information report.

If your company was created or registered on or after January 1, 2024, and before January 1, 2025, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier.

If your company was created or registered on or after January 1, 2025, you must file BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective.

Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 days.

What penalties do individuals face for violating BOI reporting requirements?
As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

Who can access this information?
FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.