Beneficial Ownership Information Reporting under the Corporate Transparency Act
Beginning January 1, 2024, the Corporate Transparency Act (CTA) requires many companies operating in the United States to report information to the federal government about individuals who create, own, or control the companies. Anyone who willfully fails to comply with the reporting requirements can be liable to civil and criminal penalties.
This blogpost outlines CTA’s reporting requirements. This discussion is not comprehensive and is not intended to be legal advice. Special rules or nuances may apply depending on specific circumstances. If you would like to consult an attorney at Ellis, Li & McKinstry PLLC about CTA’s filing requirements, please contact Nick Glancy (nglancy@elmlaw.com), Nat Taylor (ntaylor@elmlaw.com), or Daniel Ichinaga (dichinaga@elmlaw.com).
- What is the Corporate Transparency Act?
CTA is a federal law that requires many companies operating in the United States (reporting companies) to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The reporting requirements are intended to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities.
- Which companies need to file reports?
In general, any corporation, limited liability company, or other similar entity must file beneficial ownership information reports under the CTA if the entity is created in the United States by the filing of a document with a secretary of state or similar office (domestic reporting company), or if it is formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office (foreign reporting company). However, the CTA exempts 23 types of entities from reporting requirements, including publicly traded companies, banks, tax-exempt organizations, and Large Operating Companies. In general, a Large Operating Company[i] must satisfy the following requirements:
a. the entity employs more than 20 full-time employees[ii] in the United States[iii]; and
b. the entity filed a federal income tax or information return for the previous year reporting more than $5 million in gross receipts or sales (not including from sources outside the United States).
- What information needs to be reported?
Reporting companies must report information about themselves and their “beneficial owners.” Reporting companies created or registered on or after January 1, 2024, must also report information about their “company applicants.” For definitions of “beneficial owners” and “company applicants,” see Question #4, below.
a. The following information generally must be reported for each domestic reporting company: (1) full legal name; (2) any trade name or “doing business as” name; (3) complete current U.S. business address; (4) state, tribal, or foreign jurisdiction of formation; and (5) taxpayer identification number (e.g., the U.S. employer identification number, or EIN). The requirements are largely the same for foreign reporting companies.
b. The following information generally must be reported for each beneficial owner and company applicant: (1) full legal name; (2) date of birth; (3) complete current business street address (for a company applicant) or residential street address (for a beneficial owner); (4) unique identifying number and issuing jurisdiction from a current U.S. passport, state driver’s license, identification document issued by a state, local government, or Indian tribe, or (if the individual does not have any of the foregoing documents) a foreign passport; and (5) an image of the document used for item (4).
Reporting companies and individuals have the option of applying for a “FinCEN identifier” that can be reported in place of the information that would otherwise be required. Generally, a reporting company or individual will need to submit the same information to request a FinCEN identifier that they would need to submit on beneficial ownership information reports.
Individuals filing reports may also need to provide basic contact information (email address, phone number, etc.).
- Who are “beneficial owners” and “company applicants”?
For purposes of the CTA, a beneficial owner is an individual who owns or controls at least 25 percent of a company or who exercises substantial control over the company. The CTA regulations provide guidance on how to determine ownership of reporting companies with complex capital structures.
An individual exercises substantial control over a reporting company if the individual meets any of four criteria:
a. the individual is a senior officer (meaning a president, chief executive officer, chief financial officer, chief operating officer, general counsel, or similar officer position);
b. the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;
c. the individual is an important decision-maker; or
d. the individual has any other form of substantial control over the reporting company.
A reporting company can have multiple beneficial owners, and there is no maximum number of beneficial owners who must be reported. While in some cases it will be easy to determine a reporting company’s beneficial owners, in other cases the application of the CTA rules may be less clear.
A company applicant is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the reporting company. Each reporting company that is required to report company applicants must identify at least one company applicant, and at most two. An attorney may be a company applicant if the attorney directly files the document that creates or registers the reporting company.
- When must initial reports be filed?
The deadline for filing an initial report depends on when a reporting company is created or registered:
a. A reporting company created or registered before January 1, 2024, has until January 1, 2025, to file its initial report.
b. A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, must file its initial report within 90 calendar days after receiving actual or public notice that the company’s creation or registration is effective.
c. A reporting company created or registered on or after January 1, 2025, must file its initial report within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
- When must updated or corrected reports be filed?
A reporting company must file an updated report if there is a change to previously reported information or if the company realizes that a prior report included inaccurate information, including as part of an application for a FinCEN identifier. Likewise, individuals who obtain FinCEN identifiers must also update and correct information previously reported.
a. If there is any change to any information previously submitted to FinCEN concerning a reporting company or its beneficial owners, the reporting company must file an updated report within 30 calendar days after the date on which the change occurs. The same 30-day timeline applies to changes in information submitted by an individual or reporting company in order to obtain a FinCEN identifier. However, a reporting company is not required to file an updated report for changes to previously reported information about company applicants. Reporting companies will need to work carefully with their beneficial owners to monitor for changes that require updated reports. Examples of changes that can require updated reports include:
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- A company ceases to be exempt from the CTA reporting requirements;
- A company that previously filed a CTA report later becomes exempt from the CTA reporting requirements (for example, if a reporting company becomes a Large Operating Company);
- A reporting company registers a new business name;
- A reporting company obtains a new president, CEO, CFO, or COO;
- Interests in a reporting company are sold so that a new individual owns at least 25 percent of the reporting company;
- A beneficial owner’s name or residential address changes; or
- A beneficial owner obtains a new driver’s license or passport that includes a new identifying number.
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b. If a reporting company identifies an inaccuracy in a previously filed report, the company must correct the information within 30 days after the date the company became aware of the inaccuracy (or had reason to know of the inaccuracy). This includes any inaccuracy in the required information provided about the reporting company, its beneficial owners, or its company applicants. The same 30-day timeline applies to inaccuracies in information submitted by an individual or reporting company to obtain a FinCEN identifier.
- How should reports be submitted to FinCEN?
Reporting companies need to report beneficial ownership information electronically through FinCEN’s website. A FinCEN webpage (https://boiefiling.fincen.gov/fileboir) allows users to prepare and submit a report directly online, or to prepare a report offline using Adobe Reader and submit the report once it has been completed. FinCEN has also published Beneficial Ownership Information Report (BOIR) Filing Instructions (see: https://boiefiling.fincen.gov/help). FinCEN will not charge a fee for receiving beneficial ownership information reports.
- What penalties could apply for failing to fulfill CTA requirements?
A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues and criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a report, willfully filing false information, or willfully failing to correct or update previously reported information. Willfully means “the voluntary, intentional violation of a known legal duty.”[iv]
Both individuals and corporate entities can be held liable for willful violations. This can include not only an individual who actually files (or attempts to file) false information with FinCEN, but also anyone who willfully provides the filer with false information to report. In cases of willfully failing to report complete or updated beneficial ownership information, individuals can be held liable if they either cause the failure or are a senior officer at the company at the time of the failure.
- Where can I find more information?
The FinCEN Beneficial Ownership Information website (https://www.fincen.gov/boi) provides additional detail about the CTA reporting requirements, including links to statutory text, implementing regulations, a summary brochure, an FAQ webpage, and a Small Entity Compliance Guide. FinCEN updates its website periodically, so users should monitor for changes.
You are also welcome to contact Nick Glancy (nglancy@elmlaw.com), Nat Taylor (ntaylor@elmlaw.com), or Daniel Ichinaga (dichinaga@elmlaw.com) if you would like Ellis, Li & McKinstry PLLC to advise you on CTA requirements or assist you with making CTA reports. Ellis, Li & McKinstry PLLC will not automatically file CTA reports for existing clients, but is happy to assist on request.
[i] 31 U.S.C § 5336 (11)(B)(xxi).
[ii] See 26 CFR 54-4980H-1(a) and 54.4980H-3.
[iii] See 31 CFR 1010.100(hhh).
[iv] 31 USC § 5336(h)(6).