Understanding the Corporate Transparency Act: A Simple Guide
In an effort to shine a light on the ownership of businesses and fight financial crimes, the U.S. government introduced the Corporate Transparency Act (CTA). Here's what it means for us and why it might matter to you, your entities and how we can assist you.
What is the Corporate Transparency Act? The CTA is a new law that requires certain businesses and non-profits in the U.S. to report who owns the entity and who makes substantial business decisions about the business to a federal database managed by the Financial Crimes Enforcement Network (FinCEN). The CTA’s goal is to capture more ownership and decisionmaker information from specific U.S. businesses to combat illicit activity including money laundering, financing of terrorism and other illegal activities.
Who Needs to Report? Not every business or non-profit has to report. The focus is mainly on smaller businesses. Most large companies, those publicly traded, businesses that already are subject follow strict regulatory oversight, and certain non-profits might not need to submit their details. However, if you’re starting a new business or own a small enterprise, you will likely need to provide information about who owns and controls your company.
Do all Nonprofits Have to Report? Like other entities, certain non-profits will have a requirement to report, while others are exempt.
What Information Must Be Reported? Reporting businesses will be asked to report certain details about their "beneficial owners" (people who own or control the entity) Newly formed entities, will also be required to report "company applicants" (those who signed or filed the company’s formation documents). This includes legal names, birthdates, addresses, and an identification number and photo (from a driver’s license, passport or similar document. The online filing is known as a Beneficial Ownership Information Report (BOIR).
What are the deadlines? Entities in existence on or before December 31st, 2023, must file an initial BOIR no later than December 31, 2024. Entities formed after December 31st, 2023, have only 90 days after formation to file their initial BOIR. New entities formed in 2025 and thereafter will have only 30 days to file their initial BOIR.
Why Does It Matter? What are the consequences of non-compliance? The goal of the CTA is to make business ownership more transparent, which helps prevent fraud and corruption. Non-compliance with the CTA can lead to substantial penalties, including fines ranging from about $500 to $10,000 per violation and imprisonment for up to two years.
Where can I learn more? Small Entity Compliance Guide | FinCEN.gov, and FAQs
How can OMW help? We understand that navigating new regulations can be challenging. If you would like assistance to review your entities, or assistance or the initial BOIR online we are available to offer options and services for compliance. Please note that CTA compliance is not part of our annual corporate maintenance and registered agent services. We will not undertake any work related to CTA compliance unless you have requested our services.
I’d like OMW’s assistance, what are my next steps? You may contact Chris Collison, Business Paralegal, at (206) 447-0461, or ccollison@omwlaw.com, Attorney David Ellenhorn at dellenhorn@omwlaw.com, or your OMW attorney.
Some of these terms might be helpful as you navigate the CTA.
Glossary of terms:
- Reporting company: An entity required to submit a BOIR report under the CTA. This includes both domestic reporting companies and foreign reporting companies and certain non-profits.
- Domestic reporting company: Any entity that is a corporation, LLC, limited partnership, non-profit or other entity formed by filing a document with a secretary of state or similar office under state or tribal law, that does not qualify for an exemption.
- Foreign reporting company: An LLC, corporation, limited partnership, non-profit or other entity formed under foreign law and registered to do business in the U.S. by filing a document with a secretary of state or similar office that does not qualify for an exemption.
- Beneficial owner: A Beneficial Owner is an individual or entity who, directly or indirectly, either (1) exercises Substantial Control over a Reporting Company or (2) owns or controls at least 25% of the Ownership Interests of a Reporting Company.
- Beneficial Ownership Information (BOI): Personal identifying information about individuals who directly or indirectly own or control a company.
- BOIR (Beneficial Ownership Information Report): Reporting businesses must submit this form electronically to FINCEN.
- Company applicant: For domestic reporting companies, this is the person who signed, authorized, or files the document to create the company. For foreign reporting companies, the company applicant is the person who registers the company to do business in the U.S. In both domestic and foreign reporting companies, this refers to the person mainly in charge of guiding or overseeing the filing process when multiple individuals are involved in submitting the document.
- FinCEN identifier (FinCEN ID): A unique number FinCEN issues to individuals and reporting companies upon application, replacing the need for identifying information about beneficial owners to be set forth in BOIRs. Applying for a FinCEN ID number may be appropriate if required to disclose information for multiple entities.
- Substantial control: An individual is considered to have substantial control (decision-making authority) of a reporting company. if they are a senior officer, have authority over key appointments, or are a crucial decision-maker.
- Ownership interest: An arrangement that establishes ownership rights in a reporting company, like shares, stock, units, membership interests, partnership interests, voting rights, or other mechanisms indicating ownership, including contractual rights to own such as options or convertible securities.
