Corporate Transparency Act Effective January 2024

At Faulk & Winkler, it is always our goal to provide you with the most up-to-date information that we find will benefit you the most as a client and a business owner. Next month, Congress’s Corporate Transparency Act goes into effect and will affect millions of small business owners who will now be required to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This beneficial ownership information reporting will better enable FinCEN to combat illegal acts, such as money laundering, financing of terrorism, tax fraud, and other offenses. Below, we have summarized the information you need to know to answer some of the questions you may have about this new reporting requirement as a business owner.

Will my business be affected by this new reporting requirement?

Your business will most likely be affected by this new reporting requirement. There are two types of reporting companies: domestic reporting companies and foreign reporting companies. Domestic reporting companies are limited liability companies, corporations, 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 formed under the law of a foreign country that have registered to do business in the United States by filing a document with a secretary of state or any other similar office.

There are some exceptions to these reporting requirements. Twenty-three types of entities are exempt from these reporting requirements and include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. Detailed criteria are required to be met to be exempt from these reporting requirements. For a look at each of the exemptions, please read on at the following article from our friends at Wolters Kluwer: https://www.wolterskluwer.com/en/expert-insights/the-23-exemptions-from-the-corporate-transparency-act

If you are not sure whether your business is exempt after reviewing the link above and would like more information on this topic, please reach out to us and we can provide you with more information on the subject.  

What information will need to be submitted for this new reporting requirement?

The aim of the Corporate Transparency Act is to capture all beneficial ownership information. Beneficial ownership information is the identifying information about the individuals who directly or indirectly control a company. A beneficial owner can fall into one of two categories: someone who exercises substantial control or owns or controls at least twenty-five percent of the ownership interests of a reporting company. For each individual who is a beneficial owner, the company will have to provide the individual’s name, date of birth, residential address, and an identifying number from an acceptable identification document, such as a driver's license or passport, and the name of the issuing jurisdiction of the identifying document. The company will also have to submit an image of the identification document as part of their report. If any of a beneficial owner’s information changes, or if there is a change in who the beneficial owners are for a company, an updated report will need to be filed with FinCEN within 30 days of the change.

Reporting companies will also have to submit information about the company itself. This information will include its legal name, any trade names, its current address in the United States for domestic companies, the current address from which it conducts business in the United States for foreign companies, its jurisdiction of formation or registration, and its Taxpayer Identification Number. The reporting company will also have to indicate whether it is filing an initial report or a correction of a previous report.

Are there any other options for reporting this information?

FinCEN has established a process for obtaining a “FinCEN identifier.” This is a unique identifying number that will be issued to an individual or reporting company upon request. Individuals can apply for an identifier by filling out an online application with FinCEN. In the application, the individual must provide their name, date of birth, address, unique identifying number, and the issuing jurisdiction of the identification document. They will also be required to provide an image of the identification document, such as a passport or driver’s license. Upon completion of the online application, the individual will immediately receive a FinCEN identifier which is unique to them. Reporting companies can request identifiers by checking a box on the beneficial ownership interest form. Once obtained, the FinCEN identifier can be used on the report in place of the four pieces of identifying information required for each individual on the beneficial ownership information report. The use of identifiers obtained by reporting companies is still the subject of ongoing rulemaking. More information and guidance will be provided once this rulemaking is finalized.

I’m planning on forming a company after January 1st of 2024. Will my company be subject to any additional reporting requirements?

If a company is formed on or after January 1st, 2024, the company must submit at least one company applicant, up to two total applicants. The company applicant will qualify if they meet the following criteria: they are the individual who directly files the document that creates or registers the company and if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.   

When will I need to report my company’s beneficial ownership information to satisfy the FinCEN reporting requirements?

The reporting requirements will depend on the reporting company’s formation date. All new reporting companies formed on or after January 1st, 2024 will report all required information within 90 days. This 90-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier. However, this 90-day deadline will only be applicable for 2024. Companies that are created or registered on or after January 1st, 2025 will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial beneficial ownership reports. All reporting companies formed before January 1st, 2024 will have until January 1st, 2025 to file its initial beneficial ownership information report with FinCEN. Reports will begin to be accepted on January 1st, 2024.

How will I file this information report?

Beneficial ownership reporting will be filed electronically through a secure system on FinCEN’s website, which is not yet available, but will be available before the report must be filed.  There will be no fee required for submitting the beneficial ownership information report. FinCEN will release further instructions and guidance on how to complete and file the beneficial ownership information report in the future.

Are there any penalties for not filing the beneficial ownership information report?

FinCEN is issuing guidance as the agency knows this is a new reporting requirement. If a company corrects an inaccurate report filed with FinCEN within 90 days of the original due date of the report, the Corporate Transparency Act creates a safe harbor from penalty. However, if an entity willfully fails to report a complete beneficial ownership information report, it may be subject to civil or criminal penalties. These penalties include civil penalties of up to $500 for each day that the company is in violation of reporting requirements, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

As always, we are here to provide education on any new reporting requirements for your business. However, we will be unable to advise you on the specifics of complying with the act because doing so would be considered an unauthorized practice of law. We strongly urge you to consult legal counsel for specific advice on the steps your company needs to take to comply with the law.