What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is the largest federal regulation of small businesses in United States history. The CTA impacts over 30 million businesses and requires them to disclose personal information about the individuals who own and control the company. 

• The Corporate Transparency Act requires legal entities in the U.S. to report ownership information to the Financial Crimes Enforcement Network (FinCEN).
• FinCEN’s Beneficial Ownership Information (BOI) Reports aim to combat financial crimes.
• BOI is not publicly available and is stored in a secure, government database.

The CTA requires legal entities in the U.S. to file Beneficial Ownership Information (BOI) Reports to FinCEN. BOI Reports contain information about the significant owners, called “beneficial owners”, and important decision makers, called “control parties”, who are involved in operating a reporting company. New companies formed in 2024 and thereafter also need to report two “company applicants” who are responsible for having the entity formed. 

What is the Purpose of the Corporate Transparency Act?

The purpose of the Corporate Transparency Act is to fight money laundering, tax evasion, and other forms of illegal financial activity perpetrated through the use of legal business entities. These entities include:

• limited liability companies (LLCs),
• corporations,
• types of partnerships, and
• business trusts. 

The CTA tasks FinCEN with collecting Beneficial Ownership Information from U.S. business entities and storing it in a secure government database. FinCEN does not make Beneficial Ownership Information available to the public.

FinCEN grants U.S. law enforcement agencies limited access to the BOI database for the purpose of assisting with investigations of financial crimes. Banks can also obtain access to BOI records under specific circumstances in order to ensure compliance with Know Your Customer laws (KYC). 

FinCEN’s BOI registry is the first of its kind in the United States. The new reporting requirements bring the U.S. in line with international standards found in Europe and Canada.

What Businesses Need to Comply With the CTA?

Despite its name, the Corporate Transparency Act impacts more than just corporations. A majority of all legal entities formed in the United States will need to report under the Corporate Transparency Act. Over 30 million existing entities need to complete Beneficial Ownership Information Reports in 2024.

• LLCs, corporations, and limited partnerships need to comply with the CTA by submitting BOI Reports to FinCEN.
• Foreign entities formed in another country that are registered to do business in any U.S. state also need to submit BOI Reports.
• Any entity created through a state filing needs to comply.
• General partnerships, sole proprietorships, and common law estate planning trusts are not defined as reporting companies under the CTA.

Limited liability companies (LLCs), corporations, limited partnerships, and other entities created by a government filing are required to report Beneficial Ownership Information. Reporting exemptions are given to large businesses, not small. Non-profit charitable organizations approved by the IRS are also exempt. 

The CTA also impacts foreign business entities with business operations in the United States. Foreign companies that are registered to do business in any U.S. state need to submit BOI Reports to FinCEN. 

Are Any Businesses Exempt from the CTA?

Yes, FinCEN exempts certain types of businesses from the BOI Reporting requirements. Some exempt businesses include: 

• Publicly traded companies,
• “Dormant” or inactive companies,
• “Large Operating Companies”,
• 501(c)(3) non-profit organizations,
• And more.

There are 23 exemption categories provided by FinCEN.

What are the Penalties for Violating the Corporate Transparency Act?

Violating the Corporate Transparency Act can result in both civil and criminal penalties that include daily fines and jail time.

• Civil penalties of up to $500 in fines per day per reporting violation. 

• Criminal penalties of up to $10,000 in fines and two years in jail for willful noncompliance. 

Civil penalties for BOI Reporting violations include fines up to $500 each day that a violation continues. Reporting violations can include failing to submit or update BOI Reports on time, providing inaccurate information in a report, or submitting incomplete reports. 

All of a company’s beneficial owners and senior officers can face criminal penalties for willfully failing to comply with the Corporate Transparency Act. This includes refusing to file BOI Reports, or intentionally providing false information to FinCEN. Criminal penalties include up to $10,000 fines and up to 2 years imprisonment. 

Who Do the Penalties Apply to?

Every senior officer and beneficial owner in a reporting company can be found responsible and face penalties for BOI Reporting violations. In addition, any individual who causes a reporting company to fail in filing its BOI Report in time can be subject to penalties.

How to Comply With the Corporate Transparency Act: 3 Steps

Businesses need to do the following to comply with the Corporate Transparency Act: 

     1.) Submit a Initial BOI Report before the deadline.

     2.) File Updated BOI Reports when information changes.

     3.) File a Corrected BOI Report if any information is incorrect or false. 

Deadlines for submitting Initial BOI Reports depend on when the company was first formed:

Existing Reporting Companies File BOI before January 1, 2025

Existing reporting companies need to submit their Initial BOI Report to FinCEN anytime between January 1, 2024 and December 31, 2024. 

Existing reporting companies include domestic entities that were officially formed before January 1, 2024, and foreign entities that registered to business in the U.S. before that date.

New Reporting Companies File BOI within 90 Days

Under current regulations, new reporting companies will have only 90 calendar days from the formation date to submit their Initial BOI Reports to FinCEN. 

New reporting companies include domestic entities that are formed after January 1, 2024, and foreign entities that register to do business in the U.S. after that date. 

How to Find a Company’s Formation Date

A company’s formation date is considered to be the earlier date of which the reporting company received actual or public notice from the Secretary of State that the entity filing was approved to create or register the company. This date will also appear on a public registry maintained by the Secretary of State. 

For example, Delaware entities can find their official formation date on the state’s website, corp.delaware.gov.

BOI Tip: Some states file this approval the same date the company was formed or registered. In most states, this date may be days or weeks or after the filing was approved. Company’s filling out BOI Reports may benefit from being conservative and using the date the filing was submitted to the Secretary of State. It may be difficult to later determine the first date of record notice.

When and How to Update A BOI Report

• Submit Updated BOI Reports to FinCEN within 30 calendar days of any change in information.

BOI Reports must be kept up to date at all times. Reporting companies need to update their BOI with FinCEN if there is a change to any previously reported information.

Reporting companies can update their information by submitting a new Updated BOI Report to FinCEN. Examples of events that require an updated report include: 

• Any change to a reported individual’s name or residential address; 
• A reported individual receives a new driver’s license or other identifying document; 
• The reporting company starts to use a new trade name, domain name, or DBA;
• There is a sale, transfer, or issuance of ownership interest;
• A new senior executive is appointed;
• And more.

When and How to Correct a BOI Report

• Submit Corrected BOI Reports within 30 calendar days of discovering inaccurate information.

Under the law, BOI Reports must be complete and accurate. A reporting company needs to correct any inaccurate or false information reported to FinCEN by submitting a new filing, called a Corrected BOI Report. A Corrected BOI Report needs to be submitted to FinCEN no later than 30 calendar days after the company knew, or should have known, of an inaccuracy.

Penalties for Failing to Update or Correct BOI Reports

Reporting companies that fail to update or correct beneficial ownership information with FinCEN are considered in violation of the CTA. These violations can result in civil penalties of up to $500 per day in fines. 

Individuals who willfully fail to update a reporting company’s BOI or knowingly submits false or fraudulent information to FinCEN can face criminal penalties of up to $10,000 in fines and two years imprisonment. 

What is the Financial Crimes Enforcement Network (FinCEN)?

The Financial Crimes Enforcement Network, or FinCEN, operates as a branch of the United States Department of the Treasury, dedicated to fighting financial crimes domestically and globally. These crimes include activities such as money laundering and terrorism financing.

Under The Corporate Transparency Act, it is FinCEN’s responsibility to gather and maintain Beneficial Ownership Information of companies based in the U.S, in a confidential government database.