The Corporate Transparency Act
In 2021, the U.S. Congress introduced the Corporate Transparency Act (CTA) as part of the broader William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021. This legislative change has significantly reshaped the regulatory landscape concerning financial integrity and anti-money laundering efforts.
The Basics
It includes some of the most significant changes in recent decades to the regulatory landscape. The CTA will require many business owners to provide specific information about the ownership of their company to the federal government.
FinCEN is an abbreviation for the Financial Crimes Enforcement Network, a bureau of the U.S. Department of Treasury.
You can visit their website here.
“FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. FinCEN carries out its mission by receiving and maintaining financial transactions data; analyzing and disseminating that data for law enforcement purposes; and building global cooperation with counterpart organizations in other countries and with international bodies.”
The primary objective of the CTA is to bolster the regulatory framework to mitigate money laundering, terrorist financing, and various unlawful endeavors.
Its central purpose is to safeguard U.S. corporations and limited liability companies (LLCs) against potential misuse for criminal activities while also facilitating law enforcement agencies in the detection and prevention of illicit behavior.
All About Beneficial Ownership
Reporting companies include corporations and LLCs created in the United States as well as foreign companies registered to do business in the United States, unless they meet one of the 23 exemptions.
- The company’s legal name and any trade name or DBA;
- Company address;
- The jurisdiction where it was formed or registered, whether it’s a U.S. or foreign company; and
- Taxpayer identification number.
Direct Filer
A direct filer is required to be reported by all companies formed on or after January 1, 2024. The direct filer is the individual who submits the entity formation documents (typically called the articles of incorporation or formation but the document name varies by state) to the secretary of state or similar office.If you utilize URA for your new entity formation, the URA staff member who submits your documents to the state is considered the direct filer. We will provide you the information necessary to include on your report.
Directs or Controls the Filing Action
This is the individual at your company who makes the decision to form the new entity. If you are an individual starting an LLC and you hire a company to form your LLC with the state, you are also considered the company applicant because you directed the entity to be formed.The major exceptions include publicly traded companies, non-profits (though only if you have applied for and received 501(c)(3) status with the IRS), and certain large operating companies.
If you believe your company may qualify for an exemption, you can view the full list as well as the criteria for each exemption on page 10 of the BOI Small Business Compliance Guide by FinCEN.
No, not unless the sole proprietorship has filed a document with the secretary of state or similar office. It is only considered a reporting company if it has filed a formation document in the United States.
Sole proprietorships that have obtained an EIN number from the IRS, a fictitious business name, or have received a professional or business license, but have not filed documentation with the secretary of state (or similar registered office) are not considered reporting companies.
No, reporting companies do not have to report information about parent or subsidiaries.
FinCEN issued clarification on this matter by stating:
"No, though if a special reporting rule applies, the reporting company may report a parent company’s name instead of beneficial ownership information. A reporting company usually must report information about itself, its beneficial owners, and, for reporting companies created or registered on or after January 1, 2024, its company applicants. However, under a special reporting rule, a reporting company may report a parent company’s name in lieu of information about its beneficial owners if its beneficial owners only hold their ownership interest in the reporting company through the parent company and the parent company is an exempt entity."
Additional clarification may be found in the Small Entity Compliance Guide, issued by FinCEN.
No. The address of a reporting company must be listed as a U.S. street address.
Submission and Deadlines
FinCEN defines the date of creation or registration for a reporting company as the earlier of the following dates:
- The date that the reporting company receives actual notice that its creation (or registration) has become effective; or
- The date that a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created or the foreign reporting company has been registered.
FinCEN acknowledges that different states have different ways of filing. Some states use automated systems to inform newly registered companies, while others rely on public posting of state records for notification. FinCEN assumes that people creating or registering reporting companies will likely stay informed about such notices or publications since they have a vested interest in establishing and operating their business or engaging in the intended activities of the reporting company.
Companies that are established or officially registered prior to January 1, 2024 are required to submit a BOI report by January 1, 2025.
Companies formed on or after January 1, 2024 are required to file a BOI report with FinCEN within 90 days of receiving their finalized documents from the state of formation.
FinCEN is currently developing an online platform to securely collect beneficial ownership information from companies. When the platform is finalized, filing will take place through this secure system. FinCEN anticipates that the platform will be available starting January 1, 2024.
Yes, third-party service providers will be able to submit BOI reports on behalf of applicants.
In fact, URA has partnered with FileForms to ensure that BOI reports are filed completely and correctly.
FileForms is a state-of-the-art filing platform streamlines the BOI filing process, ensuring accurate and complete submissions within just ten minutes.
You can get started here.
Violations and Penalties
There are substantial penalties for companies that fail to file a BOI Report. FinCEN states:
"As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000."
Both individuals and corporate entities face potential liability for intentional violations. This includes not only the person who directly submits false information to FinCEN but also those who knowingly supply inaccurate information to the filer.
Both individuals and corporate entities can also be held accountable for willfully neglecting to report comprehensive or updated beneficial ownership details. In such cases, individuals may be held responsible if they either contribute to the failure or hold a senior position within the company at the time of the failure.
Yes, an individual who willfully files a false BOI report with FinCEN may be subject to the same penalties as the reporting company and its senior officers.
Yes, any individual who causes a reporting company to submit incomplete or inaccurate information on their BOI report to FinCEN may be held liable.
This would be considered willful failure to complete a BOI report and any individual who refuses will be subject to the penalties listed above.
97% of small businesses are required to file a FinCEN BOI Report in 2024.
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