The Corporate Transparency Act (the “Act”), intended to provide law enforcement with information about the owners of businesses in order to detect and prevent terrorism, money laundering, and other misconduct through such entities, went into effect on January 1, 2024. The Act requires business entities that qualify as a “reporting company” (and do not fall under an enumerated exemption) to file information on their “beneficial owners” with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury. This Beneficial Ownership Information (BOI) Report will not be publicly available, and FinCEN is authorized to disclose the information only to certain U.S. government agencies and, under certain conditions, other law enforcement agencies.
With the implementation of the Act, the burden of collecting BOI shifts from financial institutions to the reporting companies. Starting January 1, 2024, reporting companies formed before January 1, 2024 have until January 1, 2025 to file an initial BOI report to FinCEN, and reporting companies registered between January 1, 2024, and January 1, 2025 will have 90 calendar days after receiving notice of registration to file their initial BOI report.
What is a Reporting Company
Both domestic and foreign companies will be required to report to FinCEN unless an exemption applies. A “reporting company” includes (1) any corporation, LLC, limited partnership, or similar entity created by filing a document with any U.S. state, territory, or Indian tribe (domestic reporting companies) and (2) any non-US entity that registers to do business with any U.S. state, territory, or Indian tribe (foreign reporting companies).
Who is a Beneficial Owner
A “beneficial owner” is defined as any individual who exercises substantial control over an entity or owns or controls not less than 25% of the ownership interests of the entity. An individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company.
What Information is Reported
The details that reporting companies need to include in the BOI report vary based on the date their business was established. Businesses registered or established before January 1, 2024 must provide information regarding the business and its beneficial owner(s), including name, address, date of birth, and personal identification number (such as a license or passport number). Businesses established after January 1, 2024 must also provide this information for any “company applicant,” defined as both (1) the individual who directly files the document that creates or registers the company, and (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
Who is Exempt from the Reporting Requirements
The Act provides exemption from the reporting requirements for 23 types of entities, including publicly traded companies, nonprofits, and certain large operating companies. A subsidiary of an exempt entity may also be eligible for an exemption from filing a BOI report.
What is the Penalty for Failure to Report
Willfully providing false information to FinCEN or failing to report complete information can result in fines of up to $10,000 and imprisonment for up to two years.
It is notable that a BOI report only needs to be submitted once, unless previously reported information must be updated or corrected. Thus, it is recommended that any entity falling within the ambit of a reporting company address any requirements in a timely manner to avoid inadvertently violating the Act.
For more information about compliance with the Corporate Transparency Act, contact the DSA Group at jlee@devsourcing.com.
Disclaimer: This material is provided for informational purposes and does not constitute legal advice. Access or use of this information is not intended to create, and does not constitute, a lawyer-client relationship. No portion should be acted upon without first seeking legal counsel about your specific legal situation.