If you own an interest in or otherwise manage or control a corporation, limited liability company, or any other entity formed by a filing with a secretary of state (whether in North Carolina or any other state), please review this alert carefully and in its entirety.
What is new?
The Corporate Transparency Act of 2021 (CTA) is a new federal legislation that took effect on January 1, 2024.
What reporting is required?
The CTA requires certain U.S. and foreign entities that are defined as reporting companies to report beneficial ownership information (BOI) to FinCEN (the Department of the Treasury’s Financial Crimes Enforcement Network).
When does the new reporting requirement begin to apply?
The effective date is January 1, 2024, and FINCEN started accepting applications on January 1, 2024.
What is the purpose of this reporting?
FinCEN will establish and maintain a non-public national registry of beneficial owners and company applicants of reporting companies to prevent and combat money laundering and other illicit activities by identifying entities used for such activities, including their owners and parties facilitating their formation.
Where does information need to be reported?
The report must be filed with the Financial Crimes Enforcement Network (FinCEN), which is a division of the U.S. Department of the Treasury. Filers will file BOI reports here: Beneficial Ownership Information E-Filing System | FinCEN.gov.
What information needs to be reported to FinCEN?
Beneficial ownership information (BOI) about the individuals who ultimately own or control the reporting company and information about the reporting company itself.
Reporting companies formed on or after January 1, 2024 will also be required to provide information about the company applicants.
Who is a beneficial owner?
As a general rule, a “beneficial owner” is any individual who, directly or indirectly:
1) Owns 25% or more of the interests in the reporting company or
2) Exercises “substantial control” over the reporting company (this includes managers of an LLC, senior officers, members of a board of directors, among others, regardless of whether these individuals are owners).
Certain elements of these tests are nuanced, which will cause uncertainty in some cases.
A comprehensive analysis of the definition of who constitutes a “beneficial owner” of a reporting company is beyond the scope of this alert. Yet, the definition would cover most individuals who own interests in the entity, either directly or indirectly through another entity, or who serve as senior officers or managers of an entity.
Each reporting company must analyze carefully and identify its beneficial owners on a case-by-case basis.
Who is a company applicant?
Company applicants are the individuals who participated in filing the reporting company’s formation documents with the secretary of state (whether in North Carolina or any other state). Specifically, a company applicant is an individual who directly files the creation or registration document or is primarily responsible for controlling the relevant document.
What information needs to be reported about each reporting company?
1) Full legal name of the company
2) All trade names and assumed names (DBA’s)
3) Street address of the principal place of business
4) Jurisdiction of formation
5) Taxpayer Identification Number – for many reporting companies, that would be their Employer Identification Number (EIN).
What information needs to be reported about each beneficial owner and company applicant?
1) Full legal name
2) Date of birth
3) Residential address (or, for some company applicants, the business address for a company applicant)
4) Unique identifying number (ID number) from a non-expired identification document: passport, driver’s license, or another state identification document
5) State or jurisdiction issuing the non-expired
A copy of the non-expired identification document – U.S. passport, driver’s license, or state ID – must also be provided.
Who is required to report?
These new federal reporting requirements apply to millions of entities in the United States, including virtually all small and medium-sized businesses.
Unless a specific exemption applies, the reporting requirements will apply to every entity with $5 million or less in annual U.S. revenues or 20 or fewer than U.S. full-time employees.
Which companies are considered reporting companies?
Entities, which are required to report, are called reporting companies. Both domestic and foreign entities formed at any time – before and the effective date of the CTA – can be reporting companies. Reporting companies after include:
Which domestic companies are considered reporting companies?
- a corporation,
- a limited liability company (LLC), or
- a company that was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a U.S. State or Indian tribe.
Which foreign companies are considered reporting companies?
A company formed under the laws of a foreign country and registered to do business in any U.S. State or Indian tribe by such a filing.
Who is responsible for filing?
The reporting company is responsible for filing and reporting. While the filing requirements apply to the reporting company itself, but effectively its owners, officers, and management can be found liable for not filing timely and other omissions.
How do reporting companies file and report?
Reporting companies can engage professionals to file for them or file on their own on FinCEN’s BOI platform or via reporting software. If interested in software recommendations, please contact the firm.
What are the reporting deadlines?
For reporting companies in existence before January 1, 2024 – that is, formed on December 31, 2023 or earlier – the deadline for filing is January 1, 2025.
For reporting companies established on or after January 1, 2024 but before January 1, 2025 – that is, formed during this calendar year (2024) – the inaugural report is due to FinCEN within 90 days from the date of actual formation notice or public announcement, whichever occurs first.
For reporting companies established on or after January 1, 2025 – that is, formed during next calendar year and after (2024) – the inaugural report is due to FinCEN within 30 days from the notification or public announcement of their formation, whichever occurs first.
When is a report required to be updated and corrected?
Any changes in the information previously reported by the reporting company must be reported within 30 days of the change. This applies to all reporting companies.
What sort of changes are required to be reported?
Changes that must be reported within 30 days include:
- changes to the reporting company’s information (legal name, trade names, assumed names (DBA’s), address, etc.);
- changes of the identities of the beneficial owners (for example, resulting from ownership changes or appointment of new officers, directors, management);
- changes to any of the information about a beneficial owner that was previously submitted (name changes, changes of residential address, driver’s license, etc.).
How does a FinCEN Identifier impact the reporting of changes?
If a reporting company has submitted a FinCEN Identifier for a beneficial owner, it becomes the responsibility of the beneficial owner, rather than the reporting company, to timely provide FinCEN with updates to the beneficial owner’s information.
The same applies to a company applicant who has submitted a FinCEN Identifier to the reporting company and is responsible and required to provide his or her own updates to FinCEN.
What is a FinCEN identifier?
FinCEN Identifiers are designed for beneficial owners and company applicants that will be required to report for multiple reporting companies.
A beneficial owner and a company applicant can apply with FinCEN by submitting all of their required personal information, and FinCEN will issue him or her FinCEN Identifier (FinCEN ID), which is a unique identification number.
In turn, the beneficial owner or company applicant can submit only his or her FinCEN ID to each reporting company instead of submitting all of the required personal information to each reporting company.
The use of FinCEN Identifiers should streamline compliance for reporting companies.
How can a reporting company minimize it burden to report changes?
A beneficial owner or company applicant with a FinCEN Identifier is required to make updates to his or her information (for example, a change of address or issuance of a new driver’s license) with FinCEN within 30 days of each change.
To reduce a reporting company’s burden in reporting changes in the individual’s information, the reporting company should consider requesting or even requiring its beneficial owners and company applicants to obtain a new identifying number from the Treasury which will have the effect of shifting to the individual the burden of reporting changes in the individual’s information.
Where do I obtain a FinCEN ID?
Individuals can complete an online application for a FinCEN ID by submitting their personal information.
What companies are exempt from reporting?
Although exceptions to the reporting requirements exist, these exceptions (23 exemptions) are limited. Exempt entities include publicly traded companies, very large operating companies, registered or large investment companies
companies in highly-regulated industries that are already subject to substantial regulatory reporting, certain tax-exempt entities, general partnerships, and certain existing dormant entities.
| Exemption No. | Exemption Short Title |
| 1 | Securities reporting issuer |
| 2 | Governmental authority |
| 3 | Bank |
| 4 | Credit union |
| 5 | Depository institution holding company |
| 6 | Money services business |
| 7 | Broker or dealer in securities |
| 8 | Securities exchange or clearing agency |
| 9 | Other Exchange Act registered entity |
| 10 | Investment company or investment adviser |
| 11 | Venture capital fund adviser |
| 12 | Insurance company |
| 13 | State-licensed insurance producer |
| 14 | Commodity Exchange Act registered entity |
| 15 | Accounting firm |
| 16 | Public utility |
| 17 | Financial market utility |
| 18 | Pooled investment vehicle |
| 19 | Tax-exempt entity |
| 20 | Entity assisting a tax-exempt entity |
| 21 | Large operating company |
| 22 | Subsidiary of certain exempt entities |
| 23 | Inactive entity |
Will the reported beneficial owner information be made public?
No, the information reported to the Department of Treasury will not be made publicly available but will be used on a confidential basis for law enforcement and national security purposes. FinCEN has been building a secure and confidential cloud-based IT system that will meet the highest federal security level to store the beneficial ownership information. FinCEN has been establishing protocols or only authorized users to access beneficial ownership information for authorized purposes.
What are the potential ramifications of noncompliance?
Noncompliance with the CTA’s reporting requirements may result in significant civil and criminal penalties.
Providing false information or the “willful” failure by a reporting company, its senior officers, and/or a beneficial owner to comply and timely provide accurate information to FinCEN can result in both civil penalties (fine of $500 per day that a violation continues, up to a maximum of $10,000) and criminal prosecution (fine of up to $10,000 and/or imprisonment of up to 2 years).
Where can I find more guidance?
FinCEN’s FAQ.
FinCEN’s Small Entity Compliance Guide.
FinCEN’s Beneficial Ownership Information general webpage resources.
Any parting words?
Businesses subject to the CTA will face significant new reporting and record-keeping obligations. The information required to be reported will not be made publicly available and, in many cases, is already being provided to the Department of Treasury through the filing of federal income tax returns.