The Corporate Transparency Act (CTA) has gone into effect as of January 1, 2024, affecting millions of small businesses across the United States.
Understanding the complexities of this legislation and its possible implications is critical for small companies. Otherwise, failure to file or update this report may result in criminal or civil fines.
What is the Corporate Transparency Act?
The CTA, which went into effect in 2021, intends to prevent illegal activities such as tax fraud, money laundering, and terrorism funding by gathering additional ownership information for particular US enterprises that operate in or access the country’s market. According to the new legislation, firms that satisfy specific requirements must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), which includes information on people linked with the reporting company.
The CTA was enacted to prohibit persons with malicious intent from concealing or profiting from their ownership of U.S. businesses in order to enable illicit operations, which Congress believes is a commonly employed practice that jeopardizes national security and economic integrity.
Who is considered a beneficial owner of a company?
According to the CTA, an individual is a beneficial owner if they directly or indirectly hold a major portion of a corporation. This individual either has significant influence over the reporting company’s choices or operations, owns at least 25% of the company’s shares, or has a similar amount of control over the company’s stock.
What information should be disclosed about a company’s beneficial owners?
The information that reporting firms must provide in their BOI report varies depending on the date their business was created. Businesses registered or established after January 1, 2024 must provide information about the business, its beneficial owners, and company applicants, including the names, addresses, birthdays, and identification numbers (such as a license or passport number), as well as the jurisdiction of the documents. Businesses that were created before to that date, however, may exclude information about company applicants.
All reporting firms must disclose their legal name, trademarks, and current U.S. address, which can be the address of their main business site or, for foreign-based enterprises, their U.S. operating location.
They will also need to submit a taxpayer identification number and describe the jurisdiction in which they were established or registered.
Though no yearly reporting requirements have been established, Roger Harris, President of Padgett Business Services, says the first filing period is not the only time you will be expected to provide information.
“In addition to the required initial filing, there are requirements to update the original filing when things change,” Harris told CNN. “Some of the things that require an updated filing are not things a business owner has ever thought were important to track, and the timeline to report these changes can be as short as 30 days.”
According to Harris, certain revised filing requirements may surprise business owners. For example, if a beneficial owner changes their residence, officially changes their name due to marriage or divorce, or receives a new driver’s license, the company’s BOI report may need to be updated. Operational adjustments or a new delegation of power may also qualify.
What is the beneficial ownership information reporting process?
As of January 1, 2024, reporting firms have a limited time to submit their initial BOI reports. The filing deadline for qualified reporting firms that were created before the aforesaid date is January 1, 2025. Those formed between January 1, 2024 and January 1, 2025 will have 90 days from either the actual notification of creation or the public announcement, whichever comes first, to file. Businesses formed on or after January 1, 2025, will have 30 days after the notice or public announcement of their creation to file their first report with FinCEN.
Two categories of reporting firms will be needed to submit BOI reports: Domestic reporting companies include LLCs, corporations, and any other entities formed by filing with a secretary of state or similar office in the United States, as well as foreign reporting companies registered to do operations in the United States through filing with a secretary of state or an equivalent office.
Businesses will not pay a charge to submit their reports, and electronic forms will be accessible via FinCEN’s website.
Where can business owners get help with their beneficial ownership information reports?
Companies may choose to file their own BOI reports, but Harris cautioned company owners against it.
“It may not be difficult to complete the forms, but with everything a small business owner must do to operate a successful business, I fear this is something that could be missed or not done [promptly],” Harris said.
Instead, he suggests engaging with a professional advisor, such as an attorney or accountant, when completing first and/or amended reports to ensure they are done on time and in accordance with FinCEN regulations.