The Corporate Transparency Act (CTA), a federal law passed by the United States Congress in 2021, came into effect on January 1, 2024. The CTA is designed to combat illegal financial activities such as money laundering, tax evasion, and the financing of terrorism through the use of shell companies. The goal of the CTA is to improve transparency within the U.S. business environment by requiring the disclosure of Beneficial Ownership Information (BOI). The effect will be that many small legitimate companies will have to file a Beneficial Ownership Information Report (BOIR) with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) that discloses personal information for any individual who is a beneficial owner of the company.
What Entities Need to Comply with the Corporate Transparency Act?
The CTA applies to both domestic and foreign entities that are registered to conduct business in the United States. This includes corporations, limited liability companies (LLCs), and other entities that are formed through a filing with a state or similar authority. Notably, the law exempts twenty-three (23) specific types of entities from the reporting requirements, including certain publicly traded companies, nonprofits, and large operating companies. An entity that qualifies for any of these exemptions is not required to submit a BOI Report to FinCEN. Aside from exempt entities, all entities subject to the CTA must submit a BOIR to FinCEN.
Who is a Beneficial Owner?
Under the CTA, a beneficial owner is defined as any individual who, either directly or indirectly, exercises substantial control over a company or owns at least 25% of the company’s ownership interests. The Act requires that details such as legal names, birthdates, addresses, and identification numbers of these owners be reported to FinCEN.
When are Beneficial Ownership Information Reports Due?
- For entities formed before January 1, 2024, the deadline for their initial BOIR to be filed with FinCEN is December 31, 2024.
- Entities formed between January 1, 2024, and December 31, 2024, must file their initial BOIR within 90 days of formation.
- Entities formed on or after January 1, 2025, must file their initial BOIR within 30 days of formation.
How are Beneficial Ownership Information Reports Submitted to FinCEN?
Filing is carried out electronically through FinCEN’s secure online system, which can be found here: https://boiefiling.fincen.gov. FinCEN does not charge a fee for filing a BOIR.
Who Will be Able to See Your Company’s Beneficial Ownership Information?
FinCEN has set rules for who can see the beneficial ownership information. Federal, state, local, and tribal officials will be permitted to obtain beneficial ownership information for activities related to national security, intelligence, and law enforcement. Certain foreign government officials can access this information through a specific request process. Additionally, with the company’s permission, certain financial institutions can access this data to help them meet their own regulatory requirements.
To protect this sensitive information, FinCEN stores it in a highly secure, non-public database. The security measures used are similar to those the Federal government uses for other sensitive but unclassified information. Access to this information will be rolled out in stages starting in 2024:
- Spring 2024: A pilot program will begin for a select group of federal agencies.
- Summer 2024: Treasury offices and other federal agencies involved in law enforcement and national security will gain access.
- Fall 2024: More federal agencies, along with state, local, and tribal law enforcement, will get access.
- Winter 2024: Access will be provided for intermediary federal agencies handling requests from foreign governments.
- Spring 2025: Financial institutions that need this information for customer due diligence and their regulators will have access.
FinCEN is not yet accepting requests for access but will provide guidance on how to request access in the future.
What are the Penalties for not Filing a Beneficial Ownership Information Report?
Under the CTA, there are serious consequences for not following the rules about reporting who really owns and controls your company. If someone intentionally ignores these reporting requirements, they could face a daily fine. Initially, this fine is up to $500 for each day the mistake continues, but this amount will increase a little every year to keep up with inflation. Moreover, if someone knowingly fails to report the required information, reports false information, or does not correct mistakes in previously reported information, they could also face criminal charges. This could mean up to two years in jail and a fine of up to $10,000.
Why Hire The Jones Law Firm PC?
Navigating the complexities of the CTA can be challenging, particularly in understanding the nuances of who qualifies as a beneficial owner and ensuring timely and accurate filings. Our law firm is well-equipped to assist businesses in complying with these new regulations. By partnering with us, you ensure that your compliance needs are handled professionally, which not only aligns with federal requirements but also secures your business operations against potential legal challenges.
For more detailed guidance or to discuss how this might specifically impact your business, feel free to reach out to us. Let us help you stay ahead in your compliance journey with the Corporate Transparency Act and Beneficial Ownership Information Reports.