Filing Deadline Coming Soon: Corporate Transparency Act
In a previous Client Alert, we discussed a new federal law known as the Corporate Transparency Act (CTA). The CTA, which went into effect on January 1, 2024, requires all “reporting companies” to submit information about their ownership and management to the federal government through a filing known as a “Beneficial Ownership Information Report” (BOI Report). A reporting company is any business entity, domestic or foreign, that is formed or registered to do business under state law.
While there have been numerous legal efforts to strike down this controversial piece of legislation, the CTA remains the law of the land. As of the date of this Client Alert, all reporting companies are required to submit a BOI Report by or before the end of this year or face significant civil and criminal penalties. That means business owners need to act now to ensure compliance with the CTA.
WHO NEEDS TO REPORT?
As noted above, the CTA requires all reporting companies to disclose information about their ownership and management to the federal government, unless they are expressly exempt from doing so. A “reporting company” is defined as an entity (1) created by the filing of a document with a Secretary of State or similar office, or (2) formed under the law of a foreign country and registered to do business by the filing of a document with a Secretary of State or similar office. This includes corporations, LLCs, limited partnerships, and other similar entities.
WHICH ENTITIES ARE EXEMPT?
The CTA sets forth a series of 23 narrowly-drawn exemptions, which are detailed in regulations published at 31 CFR 1010.380(C)(2). Unless a business entity falls within one of the 23 enumerated exemptions, it is required to file a BOI Report.
The most notable exemption applies to so-called “large operating companies.” Generally speaking, an entity is considered a large operating company if it (1) has more than 20 full-time employees in the United States, and (2) generated more than $5,000,000 in gross receipts in the previous tax year.
Other notable exemptions include certain federally-regulated entities (including financial institutions, publicly-traded companies, and insurance companies), governmental authorities, and some (but not all) tax-exempt entities. If your entity does not satisfy the “large operating company” criteria and is not already regulated by the federal government, there is a very good chance it is considered a “reporting company” within the meaning of the CTA.
Nevertheless, you should review the list of exemptions at 31 CFR 1010.380(C)(2) to determine whether your business entity is exempt from filing a BOI Report. If you remain unsure of your entity’s exemption status after reviewing the regulations and/or consulting with a qualified professional, we strongly recommend that you file a BOI Report. Simply put, it is better to be safe than sorry. There is no penalty for submitting a BOI Report for an otherwise exempt entity.
WHEN DO I HAVE TO FILE MY ENTITY’S BOI REPORT?
As noted in our prior Client Alert, the CTA sets forth different filing deadlines based on the date a reporting company was formed or registered to do business in the United States, whichever the case may be. Those deadlines are as follows:
If a reporting company was formed or registered prior to January 1, 2024, it must file its initial BOI Report by January 1, 2025.
If a reporting company was/is formed or registered during calendar year 2024, it must file its initial BOI Report within 90 calendar days of formation or registration.
If a reporting company is formed or registered on or after January 1, 2025, it must file its initial BOI Report within 30 calendar days of formation or registration.
While the BOI Report is, in theory, a one-time filing, it is important to know that a reporting company has an ongoing obligation to file an updated BOI Report if any of its previously-reported information changes. This includes everything from a new address to a new beneficial owner (discussed below).
WHOSE INFORMATION MUST BE REPORTED?
Reporting companies are required to submit information about both the entity itself and each of its “beneficial owners.” A beneficial owner is any individual who (1) owns or controls at least 25% of the ownership interests in the reporting company, or (2) exercises “substantial control” over the reporting company.
Please take note of the word “or” in the preceding sentence. The definition of “beneficial owner” is not limited to owners in the traditional sense; it also encompasses those individuals who exercise substantial control over the company—even if they are not an owner for tax purposes.
Under the CTA, an individual is deemed to exercise substantial control if they:
Serve as a senior officer (specifically including the roles of president, CFO, CEO, COO, general counsel, or any other officer who performs a similar function)
Have the authority to appoint or remove senior officers or a majority of the reporting company’s board of directors (or similar body)
Direct, determine, or have substantial influence over decisions regarding the reporting company’s business, finances, and structure
Exercise any other form of substantial control over the reporting company
Reporting companies formed or registered on or after January 1, 2024 (but not before) are also required to submit information about their “company applicants.” The term “company applicants” includes (1) the individual who directly files the document that creates or registers the reporting company; and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
WHAT INFORMATION MUST BE REPORTED?
As noted above, a reporting company’s BOI Report will include information about the reporting company, its beneficial owners, and—for reporting companies formed on or after January 1, 2024its company applicant(s). A list of the required information for each is provided below:
Reporting Company
Full legal name (and any fictitious names)
Street address
Jurisdiction of formation
Taxpayer identification number (or equivalent issued by a foreign jurisdiction).
Beneficial Owners (and Company Applicants, if applicable)
Full legal name
Date of birth
Home address
Identification number from an approved identification document (e.g., driver’s license, passport, etc.)
Image of the approved identification document
HOW DO I FILE A BOI REPORT?
The Financial Crimes Enforcement Network (FinCEN) is tasked with implementing the CTA and processing BOI Reports. FinCEN maintains an efiling system that supports the electronic filing of the BOI Reports. FinCEN’s BOI Report e-filing system can be accessed through its website (https://boiefiling.fincen.gov/).
BOI Reports can be prepared offline via PDF or online via FinCEN’s website. That said, both preparation methods require electronic submission through FinCEN’s BOI Report e-filing system. For that reason, we suggest that you utilize the online option. Before initiating the e-filing process, be sure to have scanned copies of each beneficial owner’s driver’s license (front and back), passport, or other acceptable form of identification. You will be asked to submit that information as part of the BOI Report. If your reporting company was formed on or after January 1, 2024, you will need the same information for the company applicant(s).
HOW MUCH DOES IT COST TO FILE A BOI REPORT?
FinCEN does not charge a fee to process BOI Reports. The entire process is free, provided you do it yourself.
WHAT HAPPENS IF I FAIL TO FILE A BOI REPORT?
The CTA imposes civil and criminal penalties for non-compliance, and those penalties can be particularly harsh. If a reporting company provides false or fraudulent information to FinCEN or willfully fails to submit or update its BOI Report, it can face civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. These penalties can also be assessed against a reporting company’s controlling owner, directors, and senior officers.
AM I ABLE TO DO THIS MYSELF?
The short answer is yes. Despite the CTA’s many definitions and varying deadlines, the e-filing process is surprisingly simple. If you are confident that you have successfully identified your reporting company’s beneficial owners, then you should be able to prepare and submit a BOI Report yourself without much, if any, assistance.
If, on the other hand, you have questions about your reporting company’s beneficial ownership, exemption status, or other CTA-related issues, you are welcome to contact our office for support. While the responsibility of filing the BOI Report ultimately falls to you, we are here to answer any questions you might have.
DON’T WAIT. FILE YOUR BOI REPORT TODAY.
In the majority of cases, the BOI Report will be a fairly straightforward filing. Nevertheless, we encourage you to submit your reporting company’s BOI Report as soon as possible. This way, you will have sufficient time to seek professional assistance should you need it.
Given the novelty of the CTA and the number of BOI Reports due by the end of the year, we ask that any requests for assistance be submitted BY OR BEFORE NOVEMBER 20, 2024. We cannot guarantee a timely response to any requests received after that date.
This Client Alert is being provided for informational purposes only and is not intended and should not be construed as legal advice.