Effective, January 1, 2024, the Corporate Transparency Act (CTA) requires certain entities to report information about their beneficial owners to the Financial Enforcement Network (FinCEN).
Domestic and foreign entities that have registered to do business with the Secretary of State (or similar office) in any State may be subject to the reporting. Corporations, LLC’s and other entities are generally subject to these requirements.
There are some exemptions such as large operating companies, sole proprietorships (not formed as an LLC), trusts and general partnerships.
Under the rules a beneficial owner is defined as an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.
An individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:
- The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function).
- The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
- The individual is an important decision-maker for the reporting company.
- The individual has any other form of substantial control over the reporting company as explained further in FinCEN’s Small Entity Compliance Guide (https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf).
An ownership interest is generally an arrangement that establishes ownership rights in the reporting company. Examples of ownership interests include shares of equity, stock, voting rights, or any other mechanism used to establish ownership.
Information required to be reported is the full name, date of birth, street address, and a unique ID number (e.g., from a non-expired U.S. passport, state driver’s license, or other governmental-issued ID card) of each beneficial owner.
The due date for reporting for companies in existence prior to January 1, 2024 is December 31, 2024. Companies newly formed after January 1, 2024 but before December 31, 2024 have 90 days from the effective date of their registration to report.
This new requirement aims to create a national database to help prevent the use of shell companies for criminal activities. We recommend reviewing your business structure and ensuring compliance with these new regulations.
Report your beneficial owners by going to the official website at www.fincen.gov.
The penalties for BOI reporting violations and for the unauthorized disclosure or use of BOI are each $591 a day. Please contact us if you have questions or need assistance. However, we will not be able to file the report as doing so may be considered the unauthorized practice of law.