What is the Corporate Transparency Act?

Enacted back in 2021, the Corporate Transparency Act, or CTA, was passed with the aim of enhancing transparency in various ownership and entity structures to combat illicit activities such as tax fraud and money laundering.

As a result of the CTA, more information will be captured about how specific entities that operate within or access the U.S. market are owned. And while many people may have forgotten about the new law in the nearly three years since it was passed, it went into effect on January 1 of this year.

Businesses of all sizes throughout the U.S., and even some outside of the country’s borders, will be affected by the new law. Understanding what the CTA requires, which companies are subject to its requirements and the penalties that could be incurred for violating it is essential for any business leader.

Reporting companies

The federal government sought to gain additional transparency into business activities happening in the U.S. through the CTA. A main reason for this is that more than 27 million small businesses in America are termed “nonemployer firms” with no employees, according to a report from the Small Business Administration.

The CTA looks to create this transparency by requiring certain companies to report Beneficial Ownership Information, or a BOI.

Reporting companies can either be foreign or domestic.

Domestic reporting companies are considered LLPs, LLCs, corporations and other entities that are created through filing documents with the relevant department in their location, such as the secretary of state.

Foreign reporting companies are LLCs, corporations or another entity that is formed in a foreign country but registered to do business in a tribal jurisdiction or state through the applicable process.

Sole proprietorships that aren’t a single-member LLC don’t fall under the definition of a reporting company.

In most cases, they typically include LLPs, LLLPs, business trusts and many limited partnerships. There are some exemptions to this rule, which are outlined in further detail below.

What information do I have to report?

What information has to be included in a company’s BOI report varies depending on when the business was first established.

Those that were established or registered after January 1, 2024, have to provide information about the business itself, its applicants and beneficial owners. This includes:

Names of applicants and owners (if applicable)
Addresses
Birthdays
ID numbers, such as a passport or license number
Jurisdiction of relevant documents

Any business established before the start of 2024 don’t have to include information about company applicants.

Regardless of when the company was established, every reporting company has to provide its legal name, trademarks and current address. This should be the main business site location for domestic companies and the U.S. operational location for foreign companies.

In addition, all reporting companies have to provide their taxpayer identification number and the jurisdiction where they were either registered or formed.

Company applicants of a reporting company

Company applicants are defined in two ways.

For domestic companies, company applicants can be the person who directly filed the document that initially created the business entity. For foreign companies, company applicants can be the person who filed the document that registered it to do business in the U.S.

Company applicants can also be the individual who holds primary responsibility for either controlling or directing the filing of that document by someone else.

BOI reports

As mentioned before, companies that are subject to the CTA must file BOI reports that will include, among other things, beneficial owners of the company.

The law separates beneficial owners into two categories.

The first category includes any individual who either indirectly or directly exercises “substantial control” over a reporting company. The second category includes any individual who either indirectly or directly controls or owns at 25% or more of a reporting company’s ownership interests.

All beneficial owners have to report certain information to the Financial Crimes Enforcement Network, better known as FinCEN. This includes their:

Name
Date of birth
Address
Unique identifier number from an issuing jurisdiction that’s recognized
A photo of that same document

File the initial BOI report

Any company that was established before January 1, 2024, has until January 1, 2025, to file their initial BOI report to FinCEN. Any company created between January 1, 2024, and January 1, 2025, has to file this report within 90 days of a public announcement of its formation or the actual notice of formation — whichever date is earlier.

Businesses created after January 1, 2025, have 30 days from public announcement or notification to submit their initial BOI report.

How are BOI reports filed?

All BOI reports are filed directly with FinCEN. This is done electronically through the BOI e-filing website that FinCEN established. Navigate to boiefiling.fincen.gov, and select “File BOIR.”

Penalties for Violations of the CTA

Reporting companies can be subject to civil and criminal penalties for either failing to report or update information, or by providing false or fraudulent information to FinCEN.

Anyone who’s found to be violating the CTA reporting requirements could face a civil penalty of up to $500 for every day the violation continues. They could also be subject to criminal penalties of as much as two years in prison and fines of as much as $10,000.

Any individual who’s found to have disclosed or used information regarding beneficial ownership could face a civil penalty of as much as $500 for each day of the violation, as well as criminal penalties of as much as 10 years in prison and fines of as much as $500,000.

Implementation and compliance challenges

Many companies must adjust what they track and what they report to FinCEN under the CTA. Accounting professionals also must evaluate certain practice areas.

Companies must take proactive steps to ensure they are gathering and tracking certain information if they’re subject to the reporting requirements. A good suggestion is to implement a system for organization, as well as preparing a checklist to ensure nothing is missed.

Accountants need to define the scope of engagement for the advisory services they provide their clients as well.

By approaching the CTA in a proactive way, it’ll help to ensure nothing is missed and the company is in complete compliance.

The 23 Exemptions to the definition of Reporting Company

Corporations, LLCs and other entities aren’t considered a reporting company under the CTA’s definition if they meet one of 23 different exemptions. These include:

Securities reporting issuer
Governmental authority
Bank
Credit union
Depository institution holding company
Money services business
Broker or dealer in securities
Securities exchange or clearing agency
Other Exchange Act registered entity
Investment company or investment adviser
Venture capital fund adviser
Insurance company
State-licensed insurance provider
Commodity Exchange Act registered entity
Accounting foirm
Public utility
Financial market utility
Pooled investment vehicle
Tax-exempt entity
Entity assisting a tax-exempt entity
Large operating company
Subsidiary of certain exempt entities
Inactive entity

Other reporting timelines

The CTA set specific deadlines for when companies must file their initial BOI reports. These deadlines are based on when the company was first established.

Times to file reports for the Corporate Transparency Act

The deadline to file the initial BOI report is January 1, 2025, for any company that was formed before January 1, 2024. The deadline is 90 days from the initial filing for companies formed anytime in 2024, and 30 days from that same point for companies formed in 2025 and beyond.

Reporting companies must also file updates to their initial BOI reports for when certain situations change. This could include, for instance, if a beneficial owner has a name or address change, or if there are operational changes at the company.

Some of the deadlines for these updates to the report could be as little as 30 days, too.

FAQ

Where can I find more information about BOI reporting?

A wealth of information about BOI reporting can be found right on the FinCEN website. They have even set up a FAQ page about this, which is fincen.gov/boi-faqs.

Can an individual beneficial owner or company applicant provide their information directly to FinCEN instead of the reporting company?

Yes. Beneficial owners and company applicants are responsible for reporting all changes directly to FinCEN, not to the applicable reporting company.