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Corporate Transparency Act: What are my Obligations?

The Corporate Transparency Act, signed into law on January 1, 2023, is designed to enhance corporate transparency and combat illicit financial activities. Beginning on January 1, 2024, many companies in the United States will have to report information about the company and its beneficial owners, i.e. the individuals who ultimately own or control the company. This information will be reported to the Financial Crimes Enforcement Network (FinCen), a bureau of the U.S. Department of the Treasury. While there are still many questions to be answered about how the reporting process will work, we have gathered some frequently asked questions regarding the Corporate Transparency Act to better inform you of your potential upcoming obligations.

Who has to report?

Companies required to report information to FinCen are called reporting companies. It is a reporting company’s obligation to obtain information from their beneficial owners and report that information to FinCen. Your company may be a reporting company if your company is:

  • A corporation, a limited liability company (LLC), or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law or a state or Indian tribe; or
  • A foreign company and was registered to do business in any U.S. state or Indian tribe by such a filing.

There are twenty-three types of entities that are exempt from the beneficial ownership information reporting requirements. These entities include publicly traded companies, nonprofits, and certain large operating companies.

Who is a beneficial owner?

A beneficial owner is an individual who, directly or indirectly either (1) exercises substantial control over the reporting company or (2) owns or controls at least 25% of the reporting company’s ownership interests.

What is a Company Applicant?

A company that must report its company applicants will have only up to two individuals who can qualify as Company Applicants:

  • The individual who directly files the document that creates or registers a reporting company; and
  • If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing of the registration document.

What information needs to be reported?

The report filed with FinCen must include the following for each beneficial owner and, if applicable, company applicant:

  • Full legal name
  • Date of birth
  • Current residential address
  • Identifying number and photograph from a U.S. Passport, state driver’s license, or identification document issued by a state, local government, or tribe.

For the reporting company itself, the following information will need to be reported:

  • Its legal name
  • Any trade names or d/b/a
  • The current street address of its principal place of business
  • Jurisdiction of formation or registration
  • Taxpayer identification number

Only reporting companies created or registered on or after January 1, 2024 will need to report their company applicants.

When does the information need to be reported?

Reporting companies that were formed prior to January 1, 2024 will have until January 1, 2025 to file their initial BOI report.

Reporting companies that were formed on or after January 1, 2024 will have 90 days after receiving notice of the company’s registration to file the initial BOI report.

Reporting companies that were formed on or after January 1, 2025 will have 30 days after receiving notice of the company’s registration to file the initial BOI report.

What if there are changes to the previously reported information?

If there is any change to the required information about your company or its beneficial owners in a BOI report that your company filed, your company must file an updated report no later than 30 days after the date of the change. Examples of such changes that would require a new filing include (1) registering a new business name; (2) a change in beneficial owners; and (3) a change to a beneficial owner’s name, address, or unique identifying number previously provided.

Are there penalties for non-compliance?

Any person who willfully violates the BOI reporting requirements or fails to update outdated information within 30 days may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

It is crucial for your company to assess whether it falls within the scope of the Corporate Transparency Act and take necessary steps to ensure compliance. Failure to comply with the reporting requirements may result in penalties and other legal consequences.

As your legal representatives, we are available to guide you through the compliance process and address any questions or concerns you may have regarding the Corporate Transparency Act. We recommend reviewing your corporate structure and ownership to determine whether any action is required.

Please do not hesitate to contact us at Gates Shields Ferguson Swall Hammond P.A. to schedule a consultation or discuss any specific issues related to the Corporate Transparency Act.