The Corporate Transparency Act (CTA) was enacted in 2021. Its purpose is to create business ownership transparency by identifying individuals who have either direct or indirect ownership (“beneficial ownership”) in a company. The overall goal is to alleviate fraudulent and illegal activities. FinCEN began accepting BOI reports through their website in January 2024.
The CTA requires most existing U.S. businesses and foreign businesses that have registered to do business in the U.S. to disclose the required beneficial ownership information. A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. The timeframe for newer businesses to file is shorter. Companies created or registered in 2024 have 90 days to file this information, and those created or registered after January 1, 2025, have only 30 days to file.
Who is a Beneficial Owner?
A Beneficial Owner is anyone who directly or indirectly exercises substantial control over or owns or controls at least 25 percent interest in a business.
An individual exercises substantial control over a reporting company if they fall into any of the following categories:
- The individual is a senior officer;
- The individual has authority to appoint or remove certain officers or a majority of directors;
- The individual is an important decision-maker; or
- The individual has any other form of substantial control.
FinCEN provides additional details about each of these four reporting categories.
What companies are required to report under the CTA?
A company may need to report information about its beneficial owners if it is:
- A corporation, a limited liability company, or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Tribal jurisdiction; or
- A foreign company registered to do business in any U.S. state or Tribal jurisdiction by such a filing.
Who is exempt from filing BOI?
There are 23 types of exempt entities. These entities are already subject to stringent federal and/or state regulations for reporting beneficial ownership. These exempt entities include, but are not limited to:
- Accounting firms
- Banks
- Brokers / securities dealers
- Credit unions
- Governmental authorities
- Insurance companies
- Investments companies / advisors
- Public utilities
- Tax-exempt entities
- Venture capital fund advisors
FinCEN’s Small Entity Compliance Guide includes a list of reporting company exemptions and checklists to help companies determine if they are exempt from the reporting requirements.
What information is required?
A reporting company is required to provide basic information for itself and all beneficial owners.
For the reporting company, the required information includes legal name, trade names, address, jurisdiction of registration, and its taxpayer identification number.
For the beneficial owners, the required information includes name, date of birth, residential address, and an identifying number from an identification document such as a passport or driver’s license.
How to Prepare and File BOI
FinCEN has created the BOI E-Filing system to electronically file the Beneficial Ownership Information Report.
What happens if I don’t file by the deadline?
Failure to file may become extremely costly, with civil penalties starting at $500 per day and criminal penalties of up to $10,000 and/or two years in prison.