Small businesses may be required to report ownership details to the federal government
Effective January 1, 2024, the Corporate Transparency Act (CTA) will bring significant new requirements for small businesses. Enacted by Congress in 2021 as part of the National Defense Authorization Act, the CTA will impact more than 30 million businesses requiring them to report their Beneficial Ownership Information (BOI), those who own at least 25% of or exercise substantial control over the reporting company, with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
The CTA seeks to combat anonymous shell companies used for money laundering, terrorist financing, the sheltering of illicit funds in the U.S., and other crimes. The penalties for failure to file are severe, starting at $500 a day to $10,000, and imprisonment for fraudulent filings.
Companies should review the CTA carefully to determine whether reporting requirements apply. We have provided an overview on the CTA below. We recommend that business owners do their diligence on the CTA and consult with their financial and legal advisors as many open questions remain concerning implementation and requirements.
Who is required to report BOI to FinCEN?
Companies required to report are called reporting companies. Reporting companies include domestic and foreign (formed outside the U.S.) businesses.
- Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the U.S.
- Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
There are 23 types of entities that are exempt from the reporting requirement and are generally designed to exempt entities that already report ownership information to the U.S. government. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. Review the Small Entity Compliance Guide to identify if your company is a reporting company.
What is required in the BOI Report?
BOI reports will include identifiable information about the reporting company, the reporting company’s beneficial owners, and company applicants including full legal names, dates of birth, current addresses, DBAs, government issued IDs, etc. The form to report beneficial ownership information is not yet available. Once available, information about the form will be posted on FinCEN’s beneficial ownership information webpage: https://www.fincen.gov/boi
What are the filing requirements?
- If a reporting company was created or registered to do business before January 1, 2024, they will have until January 1, 2025 to file its initial BOI report.
- If a reporting company was created or registered on or after January 1, 2024, and before January 1, 2025, they will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
- If a reporting company was created or registered on or after January 1, 2025, they will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.
- After a reporting company has filed its initial report, updates and corrections must also be submitted to FinCEN within 30 calendar days of the change. Updates include, but are not limited to, reporting a change in beneficial owners or a change of address when a beneficial owner moves to a new address.
- Introductory Brochure: https://www.fincen.gov/sites/default/files/shared/BOI_FinCEN_Brochure_508C.pdf
- FAQs: https://www.fincen.gov/boi-faqs
- Small Entity Compliance Guide: https://www.fincen.gov/boi/small-entity-compliance-guide
- Beneficial Ownership Information Reporting Key Questions: https://www.fincen.gov/boi/quick-reference
- Oregon’s Secretary of State also has information on the CTA here: https://sos.oregon.gov/business/Pages/corporate-transparency-act.aspx
The information contained in this article is for informational purposes only and does not constitute legal advice. This information is not intended to create an attorney-client relationship, and the receipt or viewing of it does not create or constitute an attorney-client relationship. You should not act upon any information contained in this article without consulting an attorney for individual advice regarding your own situation.