Update December 3, 2024: Per Goodwin Law, “a United States district court in the Eastern District of Texas preliminarily enjoined the enforcement of the Corporate Transparency Act (“CTA”) in its entirety nationwide, and also specifically stayed the reporting deadline of January 1, 2025 for reporting companies formed or registered to do business in the U.S. before January 1, 2024.”
This blog provides a summary of the publicly available information provided by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) regarding the Corporate Transparency Act beneficial ownership information reporting rule. While this guidance should assist you with familiarizing yourself with the beneficial ownership reporting rule, we strongly encourage consulting with a legal representative familiar with your own legal entity structure and reporting obligations under the rule.
Beneficial Ownership Information Database
The Corporate Transparency Act requires certain U.S. and foreign companies conducting business in the U.S. to report “beneficial ownership information” on individuals who directly or indirectly own or control the company (31 CFR 1010.380). Certain existing, non-exempt legal entities have until January 1, 2025, to report their company information to FinCEN, which has created a database for companies to report their beneficial ownership information.
FinCEN has issued guidance as to what constitutes a reporting company and what type of legal entity qualifies for an exemption under the rule. Below is a summary of publicly available guidance as to the applicability of the beneficial ownership information reporting.
What Companies Are Required to Report
- A reporting company created or registered to do business before January 1, 2024, has until January 1, 2025, to file its initial beneficial ownership information report with FinCEN.
- A reporting company created or registered in 2024 has 90 calendar days to file their initial report after receiving actual or public notice that its creation or registration is effective.
- A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file their initial report after receiving actual or public notice that its creation or registration is effective.
- A reporting company will have to report its legal name; any trade names, “doing business as” (d/b/a) or “trading as” (t/a) names; the current street address of its principal place of business; the jurisdiction of formation of registration; and taxpayer identification number (TIN).
- For each individual who is a beneficial owner or has substantial control over the company, a reporting company will have to provide the individual’s name, date of birth, and residential address; an identifying number from an acceptable identification document such as an unexpired U.S. passport or U.S. driver's license;, the name of the issuing state or jurisdiction; and report an image of the identification document used to obtain the identifying number. Member FINRA/SIPC
- Anyone whom the reporting company authorizes to act on its behalf (such as an employee, owner, or third party service provider) may file a beneficial ownership information report with FinCEN.
- A reporting company that was created or registered on or after January 1, 2024, must report on a “company applicant.” A company applicant is an individual who directly filed the document that created or registered the company or, if more than one individual, the person primarily responsible for filing.
- The reporting rule requires that all “reporting companies” that meet the definition of a domestic or foreign company and are not exempt file beneficial ownership information reports with FinCEN within the specified timeframes.
- There are two types of reporting companies, domestic and foreign reporting companies:
- Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
- Sole proprietorships, domestic corporations, and LLC’s that are registered by filing a document with a secretary of state or similar office are considered a reporting company. Filing a document with a government agency to obtain (1) an IRS employer identification number, (2) a fictitious business name, or (3) a professional or occupational license does not create a new entity, and therefore does not make a sole proprietorship filing such a document a reporting company.
- Willfully failing to report beneficial ownership information to FinCEN or providing false or fraudulent information can result in civil and criminal penalties of up to a $500 fine for each day the violation continues and up to two years imprisonment for senior officers of that entity, as well as a fine of $10,000.
What Companies Are Exempt from Reporting
There are 23 types of entities that are exempt from the reporting requirements. Exemption 10 is specific to investment company or investment adviser legal entities. For an entity to qualify for this exemption, both of the following criteria apply:
- The entity is an “investment company” or “investment adviser” defined as either:
- An investment company in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3); or
- An investment adviser in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2)
- The entity is registered with the Securities and Exchange Commission under either of these authorities:
- The Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or
- The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.)
For a full list of all the reporting company exemptions, including other related financial institutions (banks, credit unions, depository institutions, broker-dealers, clearing agencies, insurance companies, etc.) please see FinCEN’s small entity compliance guide to determine if any other may apply.
Who Is a Beneficial Owner of a Reporting Company
For those non-exempt reporting companies that must report their beneficial ownership information, the following is a brief summary of beneficial ownership and substantial control.
A beneficial owner is an individual (i.e., natural person) who either directly or indirectly:
- Exercises substantial control over a reporting company, or
- Owns or controls at least 25 percent of a reporting company’s ownership interests
Trust, corporations, or other legal entities are not considered to be beneficial owners. However, in specific
circumstances, information about an entity may be reported in lieu of information about a beneficial owner. (Please
see FinCEN’s FAQ guidance for additional information.)
What Is Substantial Control
An individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control.
- The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
- The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
- The individual is an important decision maker for the reporting company.
- The individual has any other form of substantial control over the reporting company.
Where Can I Find Additional Information about BOI Reporting
FinCEN has made the following resource guidance materials publicly available to assist with compliance with the
reporting rule:
- FinCEN BOI Reporting website
- FinCEN has issued Frequently Asked Questions to address specific questions on the topic
- Additional information can be found in the Small Entity Compliance Guide
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
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