Small Businesses Face Reporting Obligations Under The U.S. Corporate Transparency Act

Beginning January 1, 2024, the U.S. Corporate Transparency Act (CTA) will expect a wide range of small companies to begin filing reports identifying “beneficial owners.” These “Beneficial Ownership Information” reports (BOI Reports) include name, birthday, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document. All companies with fewer than 20 employees will be required to file BOI reports unless an exemption applies. The penalty for failure to comply could be fines of up to $10,000 as well as potential criminal/personal liabilities.

The BOI Reports will be submitted through the U.S. Department of Treasury’s Financial Crimes Enforcement Network’s (FinCEN) Beneficial Ownership Secure System (BOSS) (which is currently under development). BOI Reports are intended to FinCen fight money laundering and financial terrorism and make it more challenging for illicit actors to sue shell companies to hide assets.  

The deadline for a “reporting” company to submit its BOI Report is January 1, 2025 – with some exceptions (explained below).

Required Reporting Companies

Only those entities considered “reporting companies” are subject to the CTA’s reporting requirements and thus, need to report information about its “beneficial owners.” These include:

1. A corporation, a limited liability company (LLC), or a company that was otherwise created in the U.S. by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe; or
2. A foreign company registered to do business in any U.S. or Indian tribe by such a filing.

Reporting companies have to [identify their beneficial owners – what info will they provide in filing?]. “Beneficial owners” are defined under the CTA as an individual who either directly or indirectly: (1) exercises “substantial control” over the reporting company, or (2) owns or controls at least 25% of the reporting company’s “ownership interests.”

Exemptions

Under the CTA, 23 different types of entities are exempted from the CTA’s reporting requirements, including, but not limited to:

1. Securities reporting issuer;
2. Governmental authority;
3. Bank;
4. Credit union;
5. Depository institution holding company;
6. Money services business;
7. Broker or dealer in securities;
8. Securities exchange or clearing agency;
9. Investment company or investment adviser;
10. Venture capital fund adviser;
11. Insurance company;
12. Commodity Exchange Act-registered entity;
13. Accounting firm;
14. Public utility;
15. Financial market utility;
16. Pooled investment vehicle;
17. Tax-exempt entity;
18. Entity assisting a tax-exempt entity; and
19. Large operating company (i.e., more than 20 full-time employees);
20. Subsidiary of certain exempt entities; and
21. Inactive entity.

BOI Reporting Requirements and Required Updating of Information

When filing BOI Reportswith FinCEN, the CTA requires a reporting company to identify the following about each of its beneficial owners: Name; Birthdate; Address; and A unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document).

Compliance Dates, Information Update Requirements, and Fees/Fines

Reporting companies formed before January 1, 2024, will have one year (until January 1, 2025), to file their initial report.  Reporting companies formed on or after January 1, 2024, and before January 1, 2025, must file their initial report within 90 days of the company’s formation. Reporting companies formed on or after January 1, 2025, must file their initial report within 30 days of formation.

Reporting companies have 30 days after changes occur to report those changes to previously filed reports. Also, within 30 days, reporting companies must correct inaccurate information in previously filed reports or whenever the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

The filing itself has no fee, but fines of up to $10,000 (i.e., $500 per day)  may be imposed for non-compliance. Potential criminal/personal liabilities may also be imposed.

Access to BOI Reporting Information

While the BOI Reports and accompanying information will not be publicly accessible and will not be subject to the Freedom of Information Act (FOIA), there are a number of authorized entities FinCEN may disclose to. This includes, but is not limited to, foreign, federal, state, and local national security, intelligence, and law enforcement agencies and financial institutions who require the information to conduct legal due diligence.

Next Steps

If you or your company is required to file a BOI Report, you will not be able to do so until January 1, 2024. However, prior to January 1^st, here are some initial steps you should consider:

• Determine whether your entity is a required “reporting company” or if you fit under one of the exemptions.
• If reporting is required, identify each of the entity’s beneficial owners and collect the required information for the BOI Report.
• Determine and create an internal system for ensuring complete and accurate filing of the initial BOI Report and ensure there is procedure for updating the BOI Report as needed.
• Consider consulting with and/or obtaining legal counsel to ensure requirements are met effectively and efficiently.

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Please contact Kyla Kaplan (kkaplan@ofwlaw.com) and John Dillard (jdillard@ofwlaw.com) to discuss and assist you with your obligations under the CTA’s new reporting requirements.