Starting January 1, 2024, the recently enacted Corporate Transparency Act (“CTA”) (31 U.S.C. Sec. 5336) requires all businesses formed in the United States (and foreign businesses operating in the U.S.) to report information about the company’s owners to the federal government. Specifically, this data must be shared with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), the agency responsible for upholding national security as it relates to financial matters. The CTA serves as a crackdown on anonymous “shell companies,” which have become ubiquitous in the U.S., and is presumably aimed at preventing criminals from easily using these companies for various crimes, such as money laundering, fraud, corruption, and tax evasion.
Who is required to report and what information must be disclosed?
All corporations, limited liability companies, and any other business entity that registers with a state’s Secretary of State office must report under the CTA. In Illinois, this also includes not-for-profit corporations (unless exempt per the CTA), limited partnerships, and limited liability partnerships.
At its core, the FinCEN and the CTA require disclosure of a company’s “beneficial owners” through the filing of a “beneficial ownership information report” (referred to as a “BOI Report”). A “beneficial owner” is an individual who owns or controls at least 25% of a company or exercises “substantial control” over the company. Per FinCEN guidance, an individual exercises “substantial control” over a reporting company if the individual is a senior officer, has authority to appoint or remove officers or directors, is an important decision-maker, or exerts any other form of significant influence over the reporting company. This is a very broad classification and will include virtually any individual with decision-making authority for a business.
Some companies must also report “company applicants.” A company applicant must be an individual (not an entity) and is either a “direct filer” or the individual who “directs or controls the filing action.” As the names suggest, these are individuals who either filed the document that created the reporting company or directed the filing of said document. A company applicant may include a business partner, attorney, or accountant. Only companies created or registered on or after January 1, 2024 must report its company applicants. Entities created or registered prior to January 1, 2024 do not need to report this information. This requirement creates a new obligation for attorneys who routinely file formation paperwork on behalf of their clients.
In addition to beneficial owners and company applicants, companies must also report their full legal name, any trade names/DBAs, current U.S. address, jurisdiction of formation, and the company’s employer identification number (EIN) or taxpayer identification number (TIN).
Are there any exemptions?
The CTA outlines 23 types of entities which are exempt from reporting. These include banks, securities brokers, insurance companies, tax-exempt entities, government entities, accounting firms, and large companies. These entities are subject to other oversight from government agencies.
When do I need to file?
FinCEN will begin accepting reports on January 1, 2024. Any companies required to report that were formed prior to January 1, 2024 will have until January 1, 2025 to file their initial report. Companies formed after January 1, 2024 will only have 30 days after receiving notice of their company’s creation or registration to file the report.
How do I file the report?
All reporting companies must submit their report online with FinCEN through a secure filing system. This system is still being developed and will not be available until January 1, 2024. FinCEN will publish instructions on how to complete the form at www.fincen.gov/boi.
Do I have to supplement my report with new information?
Yes. Reporting companies must update and correct information provided on previously-filed reports. If there is any change to the information previously provided, the company must file an updated report no later than 30 days after the date when the change occurred. However, a company does not need to report any changes to previously reported personal information about a company applicant. There is also no requirement to report a company’s termination or dissolution. Similarly, if you become aware of an inaccuracy in a report, you must correct the report within 30 days of learning of the inaccuracy.
The Corporate Transparency Act creates substantial obligations for all businesses. Companies should make sure they are aware of the reporting requirements to ensure they do not run afoul of the CTA. Contact an experienced business and employment attorney for assistance on how to file the appropriate report under the CTA.