New Corporate Transparency Act

How to Navigate the New Corporate Transparency Act

An estimated 32 million entities will need to file by January 1, 2025.

The Corporate Transparency Act (the “CTA”) was enacted by Congress in January 2021 and its primary purpose is to prevent money laundering and other illicit activities by requiring companies formed or registered in the United States to disclose the names of the individuals who own or control the entity. The CTA requires entities to file a beneficial ownership information report with The Financial Crimes Enforcement Network (“FinCEN”), a division of the Treasury Department.

FinCEN issued its first final rule on September 29, 2022, outlining the beneficial ownership information (BOI) reporting requirements. RASi wants to aid you in understanding the final ruling and what your next steps should be.

Which types of companies will have to file a beneficial ownership information report?

There are two types of reporting companies described in the final rule:

A domestic reporting company is defined as a corporation, LLC or any entity that is created by filing with the Secretary of State or similar office.
A foreign reporting company is a corporation, LLC or other entity created in a foreign country but registered to do business in the United States by filing with the Secretary of State or similar office.

Are there any exemptions to filing?

The final rule has 23 exemptions – a company that qualifies for an exemption is not considered a reporting company and does not have to file the BOI report.

Among the many exemptions are companies that are already regulated such as publicly traded companies; insurance companies; and broker-dealers. There is also a ‘large operating company’ exemption which applies to entities that (1) have 20 or more full time employees in the U.S., and (2) filed an income tax return in the previous year with at least $5 million in gross receipts or sales, and (3) have an operating presence or physical office within the U.S.

When do companies have to file?

Any domestic or foreign reporting company created before January 1, 2024, must file a report no later than January 1, 2025.
Any domestic or foreign reporting company created on or after January 1, 2024, must file a report within 30 calendar days of receiving notice of their registration or creation.

What information needs to be provided on the BOI?

Reporting Company Required Information:

(1) its full legal name,

(2) any trade or “doing business as” names,

(3) a complete current address consisting of: (i) in the case of a reporting company with a principal place of business in the United States, the street address of the principal place of business, and (ii) in all other cases, the street address of the primary location in the United States where the reporting company conducts business, *must be physical address

(4) the state, tribal or foreign jurisdiction of formation,

(5) for a foreign reporting company, the state or tribal jurisdiction where the company first registers, and

(6) the IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

Beneficial Owner* Required Information:

(1) full legal name

(2) date of birth

(3) current, as of the date of report, residential or business street address

(4) unique identifying number from an acceptable identification document defined as: (i) a non-expired U.S. passport; (ii) a non-expired identification document issued by a state, local government or Indian tribe; (iii) a non-expired driver’s license issued by a state; or (iv) if the individual lacks all of the foregoing documents, a non-expired foreign passport. *must be physical address

(5) Image of document the unique identifying number came from.

* A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls not less than 25 percent of the ownership interests of the entity. There are a few exceptions, such as the minor children of a beneficial owner or a person that is solely an employee of the reporting company.

Reporting companies created or registered on or after January 1, 2024, must report the same information for “company applicants” as beneficial owners. Company applicant is defined as the following 2 persons:

the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Company Applicant Required Information:

(1) full legal name

(2) date of birth

(3) current, as of the date of report, residential or business street address

(5) Image of document the unique identifying number came from.

Important Note: Applicant information is NOT required to be reported for entities already formed or registered prior to the January 1, 2024, effective date.

Updating Information

If the information about the reporting company or its beneficial owners changes, the reporting company will need to submit updated information within 30 days after the change occurs. Important note: reporting companies are NOT required to update applicant information to the extent that the applicant’s required information changes after initial reporting.

If the report was filed with inaccurate information, the reporting company has 30 days from which they became aware of the inaccuracy to file an updated report.

Penalties for Failure to File

$500 per day civil penalty
$10,000 fine or 2 years imprisonment
90-day Safe Harbor

FinCEN still has to issue two more rules and provide guidance on the reporting forms and how the filing process will actually work. RASi will keep you up to date as we learn more about how to file and the costs associated with filing. If you have any question in the meantime, please reach out to us at [email protected].

References:

2022-21020.pdf (govinfo.gov)

Beneficial Ownership Information Reporting Rule Fact Sheet | FinCEN.gov

The New Corporate Transparency Act