As the end of 2024 quickly approaches, it is imperative for companies and business owners to report their beneficial ownership information for all entities subject to the Corporate Transparency Act before the January 1, 2025, deadline.

The Corporate Transparency Act (CTA) came into effect on January 1, 2024, representing a significant shift towards increasing transparency in business ownership and combating illicit financial activities. The supposed purpose of the CTA is to address issues related to money laundering, tax evasion, fraud, and other financial crimes. The unfortunate side effect has been to sweep up the vast majority of honest small business owners in the broad net created by the CTA.

Key terms contained within the CTA include:

  • Reporting Company: most entities formed in or registered to do business in the United States will fall under this term. However, the act also creates numerous exemptions, which exclude certain categories of entities.
  • Beneficial Owner: any individual who (i) owns 25% or more of a reporting company or (ii) exercises “substantial control” over a reporting company. Additionally, many senior executives (e.g. company presidents, chief financial officers, general counsel, chief executive officers, or any other officer who performs a similar function) will be deemed beneficial owners under the CTA due to their control over a reporting company.
  • Company Applicant: an individual who directly files an entity’s formation documents with a relevant state or tribal authority or, if more than one person is involved in the filing, the individual primarily responsible for directing or controlling the filling.

The CTA and regulations promulgated by the U.S. Department of Treasury, will require nearly all small businesses in the United States to file reports with the Financial Crimes Enforcement Network (FinCEN). Specifically, all reporting companies will be required to report various information to FinCEN about the Reporting Company and their Beneficial Owners. If Reporting Companies were formed on or after January 1, 2024, each new Reporting Company is required to file their initial report with FinCEN, within ninety days following the company’s formation. If a Reporting Company was formed before January 1, 2024, but prior to January 1, 2025, the deadline to file their initial report with FinCEN before January 1, 2025. However, considering the recent hurricane, certain companies qualify for a six-month extension period. Lastly, for all Reporting Companies, if there is any change in the information that was reported previously by the Reporting Company, an updated report must be filed within thirty days of the change.

When preparing to file a report either using a Form FinCEN114, or reporting directly online via FinCen’s website, it is important to consult the FinCEN regulations and instructions to ensure accuracy and completeness. The form necessitates various details about Beneficial Owners including full name, date of birth, residential or business address, and a unique identification number (e.g. a social security number for U.S. citizens or a passport for non-U.S. citizens). Further, the form may require information about any intermediary owners, such as trusts, which hold ownership on behalf of another entity.

If a Reporting Company fails to report complete or updated Beneficial Ownership information to FinCEN or attempts to provide false or fraudulent Beneficial Ownership information, the company may face civil or criminal penalties. Also, a person may be subject to civil or criminal penalties for causing a reporting company not to file a required BOI Report or to report incomplete or false Beneficial Ownership information.

The CTA applies to a broad range of entities, including corporations, limited liability companies (LLCs), and other similar entities, which are formed or registered in the United States. It is important to note that there are 23 exemptions from the CTA. Therefore, the organizations which qualify for an exemption are not subject to the CTA’s reporting requirements. For more information on if your company qualifies for a CTA exemption, it is important to undergo comprehensive legal and regulatory review to ensure your company is exempt from the CTA reporting requirements. If you are in need of expert business attorneys to review the CTA exemptions for your company, give Connor & Connor PLLC a call for a consultation today!