The Corporate Transparency Act and What it Means for Your Small Business

The Corporate Transparency Act is an act that went into effect on January 1, 2024. According to the U.S. Chamber of Commerce, CTA “aims to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market.”

What this means is that businesses that meet the criteria for this act (new and existing corporations, limited liability companies, sole proprietors, and other entities) will have to submit a Beneficial Ownership Information Report (BOI) that informs the Financial Crimes Enforcement Network (FinCEN) of what individuals own or control the business.

This act helps prevent individuals with malicious intent from participating in illegal operations and hiding them, preserving the economic integrity of businesses in the United States. Beneficial owners have been a topic that has had an evolving definition since 2008.

In September 2022, the FinCEN released information for the final reporting rule for the BOI information, which included who needs to file BOI reports, what needs to be reported, and when the reports are due.

Where do I file?

To file, you can file electronically on FInCen's site - https://www.fincen.gov/boi. For more information on filing, check out their brochure.

What information will you need to file?

The information that businesses will need to provide for businesses, beneficial owners, and business applicants is:
- Full legal names

- Date of birth

- Current residential or business street address

- An identifying number from an acceptable identification document such as a passport, driver’s license, or any other government-issued ID

- Trademarks

- Taxpayer identification number

- Jurisdiction where the business was formed or registered
One thing to note is that businesses established before the effective date of January 1, 2024, can omit information regarding business applicants.

However, every business established on or after the effective date must provide all of the information for all mentioned parties.

- Businesses established before January 1, 2024, will have until January 1, 2025, to file.

- Businesses established between January 1, 2024, and January 1, 2025, will have 90 days from either the notice of formation or public announcement to file it depends on what comes first.

- Businesses established after January 1, 2025, will have 30 days to file from public announcement or notice of formation.

How Often Will You Have to File?

The initial filing that all businesses within the criteria will have to do may not be the only time they have to file or update, even though no annual reporting requirement has been set.

If at any point any of the information has been changed, updates will need to be reported, and businesses will have 30 days to report from when they are made aware of the changes.

Some common changes that might slip your mind are things like if you ever legally change your name, move to a new address, or get a new driver’s license.

These are all changes you would have to update your BOI report for.

Who will see this information?

Your information within the BOI reports won’t be available to the public, so there's no need to worry there. It will only be available to certain government agencies and financial institutions, regulatory agencies supervising the financial institutions, and the Department of Treasury. The information would only be used for law enforcement, national security, intelligence purposes, and fulfilling reporting obligations.

Are there exceptions?

While this act does affect a vast majority of businesses, there are exemptions that allow some businesses not to be required to file, and they are as follows:

- Securities reporting issuer

- Governmental authority

- Bank

- Credit union

- Bank or savings and loan holding company

- Money transmitting business

- Broker or dealer in securities

- Securities exchange or clearing agency

- Other Exchange Act registered entity

- Investment company or investment adviser

- Venture capital fund adviser

- Insurance company

- State-licensed insurance producer

- Commodity Exchange Act registered entity

- Accounting firm

- Public utility

- Financial market utility

- Pooled investment vehicle

- Tax-exempt entity

- Entity assisting a tax-exempt entity

- Large operating company

- Subsidiary of certain exempt entities

- Inactive entities

- Entities that the Secretary of the Treasury has determined the information would not serve the public interest.

For more information on these exemptions, check out this article from the American Bar Association.

What Happens if You Don’t File?

According to the DOI, knowingly providing incorrect information, not providing information at all, or failure to update reports to FinCEN is liable for civil penalties, which can be up to $500 a day for however long the violations last, and also criminal penalties such as imprisonment for up to 2 years and fines up to $10,000. If the BOI information is spread or used for unauthorized purposes, punishment can range from civil penalties of $500 for each day the violation continues and criminal penalties of up to 10 years in prison and fines of up to $500,000.

For more information on the Corporate Transparency Act, check out these articles:

• - How to File a Beneficial Ownership Information Report for Your Business
• 
  
• - New Reporting Requirements under the Corporate Transparency Act

This article is not legal advice. We are not attorneys or legal professionals. This blog's purpose is to inform small businesses about the new act and is not any sort of legal advice.