What is the Corporate Transparency Act? Will the CTA Affect My Business?

Blog By: Attorney Lindy Laurence 

As a small business owner, we understand that you work tirelessly to keep your business going. It's challenging enough to navigate the various registration requirements and compliance obligations that come with running a business. Now, there's a new reporting requirement on the horizon - the beneficial ownership information (BOI) for your company.

Spoiler Alert: Yes, it’s another thing you need to do.

The BOI reporting requirement is part of the 2021 Corporate Transparency Act (CTA). The CTA falls under the Bank Secrecy Act, a set of federal laws that govern record-keeping and report filings for certain financial transactions. Under the CTA, millions of entities will be required to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), which is part of the Department of Treasury.

Why is this reporting requirement so important? According to FinCEN, it will enhance the ability to protect US national security interests and the US financial system from illicit use. By providing transparency into the ultimate beneficial owners of companies, these filings will help combat illegal activities such as money laundering and fraud.

It's worth noting that most small corporations, limited liability companies, and partnerships will need to comply with this filing requirement. FinCEN expects there to be 32.6 million filings in the first year of implementation, with an additional 5-6 million every year thereafter.

How do you know if your company needs to report the BOI? A key factor to consider is if you had to file a document with your secretary of state to form your company. There are some exceptions, such as entities with more than 20 employees and gross revenue exceeding $5 million, or publicly traded companies registered under Section 102 of Sarbanes-Oxley. But for the most part, small business owners like you won't qualify for exemption and will have to report this information. Translation: yes, put this task on your To Do list.

Understanding the timeline for complying with this new obligation is crucial. Existing entities formed before December 31, 2023, will have one full year to file between January 1, 2024, and December 31, 2024. However, entities formed after January 1, 2024 will only have 90 days to file. For new or existing entities with a change in owner information, you will have 30 days to file. This short time frame can be particularly challenging for busy business owners who already have a lot on their plate.

Some aspects of the reporting requirement may not be straightforward, such as determining who qualifies as a beneficial owner. FinCEN's website provides an excellent FAQ, but you may still have questions. Rational Unicorn's legal counsel can help answer any questions you may have about who qualifies as a beneficial owner, and the BOI reporting requirements.

One of the most concerning aspects of this filing requirement is the steep financial penalties for noncompliance. Civil penalties can amount to $500 per day for each violation, and criminal penalties include a $10,000 fine and up to two years of imprisonment. Even if your non-compliance is unintentional, there can be severe consequences for business owners who are unaware of this obligation.

Given the complexities associated with meeting this filing requirement, it's crucial that businesses are aware and prepared. We hope that all small business owners take the time to understand and recognize this new compliance obligation.

To help you further, here are three commonly asked questions about the BOI reporting requirement:

1. Who qualifies as a beneficial owner?

If someone owns or controls at least 25 percent of the ownership interest of a reporting company, they are considered a beneficial owner. Additionally, individuals with substantial influence over important decisions in an entity, such as senior officers, are also considered beneficial owners.

2. What changes in information require additional reporting?

Any changes in owner information, including tangential changes like home address or telephone number, require additional reporting. It's essential to stay updated and ensure accurate reporting to avoid noncompliance.

3. Who can help provide guidance on this topic?

While CPAs and financial professionals can offer valuable information, providing legal advice on the BOI reporting requirement is considered the unauthorized practice of law. It is best to consult with an attorney for comprehensive guidance tailored to your specific situation.

What information should I gather for this new filing?

We expect the FinCEN.gov/boi site to ask for the following information about the business:

Full legal name, any trade or doing business name, US address of its principal place of business or street address of the primary location in the US where it conducts business, jurisdiction of formation and registration (if applicable), and taxpayer identification number (EIN). 

We expect the FinCEN.gov/boi site to ask for the following information about each business owner and company applicant:

Full legal name and date of birth of the individual, current address, unique identifying number (such as from a passport), and an image of the identifying document.

Updated reports must be filed within 30 calendar days of any reportable change in previously supplied information about the company (including its exempt status) or its beneficial owners (including changes in name, address, or unique number of identifying document). See 31 C.F.R. § 1010.380(a)(2)(v).

We understand that this new filing requirement may seem overwhelming, but we're here to help. Reach out and connect with legal counsel at Rational Unicorn to discuss the BOI reporting requirement and ensure compliance for your small business. Stay informed, stay compliant, and protect the future of your business!