What is the Corporate Transparency Act? How does the CTA Affect My Business?
Updated 1/7/2025
**The 5th Circuit Court of Appeals has implemented a stay on the Corporate Transparency Act and compliance is now discretionary (meaning it's optional). The case is being appealed to the Supreme Court to allow enforcement to proceed. We will keep you updated as things continue to change!**
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 another reporting requirement - the beneficial ownership information (BOI) for your company.
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 are now 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? The purpose of the BOI reporting system is to protect 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.
Most small corporations, limited liability companies, and partnerships must comply with this filing requirement.
How do you know if your company needs to file a BOI report? There are limited exceptions, such as entities with more than 20 employees and gross revenue exceeding $5 million, or publicly traded companies. But for the most part, small business owners like you will have to file an initial BOI report.
New companies that are formed after January 1, 2025 have 30 days to file their initial BOI report. Any updated information about your company or its beneficial owners must be reported no later than 30 days after the change.
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.
The most worrisome aspect of this filing requirement is the steep financial penalty for noncompliance. Civil penalties can reach $500 per day per 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 harsh consequences for business owners who are unaware of this obligation.
Given the importance of the BOI report, it's crucial that businesses are aware and prepared. We hope that all small business owners take the time to understand and recognize this important compliance obligation.
To help you further, here are three commonly asked questions about the BOI reporting requirement:
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.
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.
Who can help provide guidance on this topic?
There is a lot of information about this circulating through social media and the internet. You have probably already received multiple emails about this from your accounting software, your registered agent, your bank, your insurance company, and other various sources. While CPAs and other professionals can offer valuable information about this, providing legal advice and guidance on the BOI reporting requirement is something that only attorneys are qualified to provide. In situations like this, it’s best to consult with an attorney for comprehensive guidance tailored to your specific situation.
What information should I gather for the BOI filing?
The FinCEN.gov/boi site will ask for the following information about your 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).
The FinCEN.gov/boi site will 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!