Navigating Reporting Requirements Under the Corporate Transparency Act

November 20, 2023

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The Corporate Transparency Act will go into effect on January 1, 2024. Enacted in 2021, it aims to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities.

Beginning January 1, 2024, all new entities (“reporting company”) will need to file a Beneficial Ownership Information Report (BOIR) with the U.S. Dept. of Treasury, Financial Crimes Enforcement Network (FinCEN). This BOIR must identify the beneficial owners and anyone with “substantial control” of the reporting company.

They also must identify two “company applicants” involved in forming the entity within 30 days after receiving notice of its creation or registration.

Domestic or foreign reporting companies formed or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports.

What is the Corporate Transparency Act?

According to the American Bar Association, The Corporate Transparency Act is intended to provide law enforcement with beneficial ownership information to detect, prevent, and punish terrorism, money laundering, and other misconduct through business entities. It significantly burdens small businesses required to collect beneficial ownership information.

FinCEN is a bureau of the U.S. Department of the Treasury. The Secretary of the Treasury appoints the Director of FinCEN and reports to the Treasury Under Secretary for Terrorism and Financial Intelligence. FinCEN’s mission is to safeguard the financial system from illicit use, combat money laundering, and promote national security by collecting, analyzing, and disseminating financial intelligence and strategic use of financial authorities.

Who needs to file?

A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by filing a document with the Secretary of State or any similar office under the law of a state or Indian tribe.

A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by filing a document with the Secretary of State or any similar office.

Reporting companies typically include:

  • Limited liability partnerships
  • Limited liability limited partnerships
  • Business trusts
  • Most limited partnerships, where a filing with a secretary of state or similar office generally creates entities.

Exemptions include securities issuers, domestic governmental authorities, banks, and others that don’t fall into the above categories.

Penalties for Failure to File a Report include a $500 per day fine and up to two years in prison for willful violation.

What is a Beneficial Owner?

A beneficial owner of a reporting company (as any entity required to file a BOIR is called) is defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the reporting company’s ownership interests.

When filing a BOIR with FinCEN, the reporting company must identify itself and report four pieces of information about each of its beneficial owners AND for two of the Company Applicants. Reporting companies created after January 1, 2024, must provide the four pieces of information and document image for company applicants as well:

  • Name
  • Birthdate
  • Business Address
  • A unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document), i.e., driver’s license or passport

Individuals may obtain a “FinCEN Identifier,” which can be provided to FinCEN on a BOIR in lieu of the required information about the individual.

What is a FinCEN Identifier?

According to the Journal of Accountancy, A FinCEN identifier is a unique number that FinCEN will issue upon request after receiving the required information. FinCEN does not require entities to obtain an identifier but says it can simplify the BOI reporting process while allowing entities or individuals to provide required information directly to FinCEN.

What is a Company Applicant?

Only two (2) Company Applicant persons in the filing chain need to be identified. The company applicant is either:

  • The individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registered the entity to do business in the U.S. or
  • The individual primarily responsible for directing or controlling the filing of the relevant document by another.

In both cases, use the individuals’ business address, not their home address.

NOTE:  Existing companies do not need to report Company Applicants; newly formed entities formed after January 1, 2024, will need to do so.

Who does the Corporate Transparency Act Affect?

According to a recent Small Business Administration report, 27,104,006 small businesses were termed “non-employer firms” and had no employees. The Corporate Transparency Act is designed to improve business activity transparency by reporting Beneficial Ownership Information (BOI) and is mainly targeted at these smaller businesses.

What does this mean for you, and how can Corp1 assist?

The senior management team at Corp1 has spent the last twelve months preparing our staff and creating a system to assist our clients with the Corporate Transparency Act filings.  Soon, we will announce our portal to assist you using a simple and easy system. A checklist will help you determine if you need to file and, if so, everything you need to complete the Beneficial Ownership Information Report (BOIR).

Contact us anytime if you have questions. Stay tuned to our social media pages and blog for updates as we get close to January 1, 2024.

 

Resources: Thomson Reuters, Wolterskluwer.com, Journal of Accountancy, American Bar Association, FinCEN