Beginning January 1, 2024, companies created or registered in the United States will have one year to report personal information about their owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The Corporate Transparency Act (CTA) will now require many companies in the United States to file personal information with the government on their ownership and business applicants. Enacted in 2021, the CTA was passed to encourage transparency in entity structures and ownership to fight tax fraud, money laundering and other illegal activities.

The CTA will have a widespread effect on established companies and those not yet formed. Failure to comply with the new disclosure requirements puts your company at risk of both civil and criminal penalties. It is expected that it will cost most reporting companies with simple management and ownership structures approximately $85 to submit an initial report to FinCEN.

Who is Required to Report?

While there are some exemptions to reporting under the CTA, most for-profit companies operating in the United States will be required to report. Entities exempt from reporting under the CTA include, among others:

• large operating companies (more than 20+ full time employees and more than $5 million in gross sales)
• publicly traded companies
• inactive entities
• investment companies
• banks
• not-for-profit entities and
• entities in certain highly regulated industries. 

The CTA reporting requirements cover nearly all types of entities if they are operating in the United States including:

• corporations
• limited liability companies
• limited liability partnerships
• limited partnerships
  * business trusts and
• foreign entities that are registered to do business in the United States.

However, it is likely that sole proprietorships, general partnerships and most types of trusts will not be required to report under the CTA.

When Do You Need to Report?

1. Existing businesses must file initial reports to FinCEN by January 1, 2025.
2. Businesses created on or after January 1, 2024 will have 30 days from date of formation to file its report.
3. Any changes in an entity’s beneficial ownership structure requires submission of updated information no later than 30 days after the change occurred.

What Information Must be Reported?

The Beneficial Ownership Information (BOI) reporting rule under the CTA requires reporting companies to identify (1) beneficial owners of the company and (2) for entities formed after January 1, 2024 only, the company applicants. Companies created before January 1, 2024 only need to report on beneficial owners, and do not need to report information about its company applicants.

(1) Beneficial Owners

Under the CTA rules a beneficial owner is any individual who, directly or indirectly, either:

(A) owns 25% or more of the equity interest of the reporting company or

(B) exercises substantial control over a reporting company.

This will include executive officers, any individual who has authority over the appointment or removal of the executive officers and members of the board of directors (or a similar body) and any person who has authority to make important decisions on behalf of the reporting company. The rule exempts certain individuals from the definition of “beneficial owner” including, but not limited to, heirs, minors and certain employees, but it is otherwise designed to close loopholes and require reporting.

(2) Company Applicants

A company applicant is an individual who either:

(A) directly files the formation documents for the company, or in the case of a foreign company, registers the entity to do business in the United States or

(B) the individual who is primarily responsible for directing or controlling the formation or registration of the Company by another, if more than one individual is involved in the filing. This should be limited to one or two individuals, but could include your attorney.

What are the Penalties?

Failure to comply with the reporting requirements can result in civil penalties of up to $500 for each day the violation continues. There are also criminal penalties in the form of fines of up to $10,000, imprisonment of up to two years, or both.

Next Steps:

At this time, there is no reporting form available as FinCEN will begin accepting reports on January 1, 2024, but not before. You can monitor FinCEN.gov or subscribe to FinCEN updates in the meantime. While more information is expected to be added to FinCEN’s website ahead of the January 1, 2024 effective date, it is important to make sure that your company is ready to file before the January 1, 2025 deadline.

The information above provides general guidelines. If you need help determining whether your business is required to report and if so, whose information is required to be reported for your company, please contact your Dinsmore attorney.

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* Caroline Rice is a law clerk and not yet licensed to practice law.