The Corporate Transparency Act

Published March 1, 2023

New Federal Law Mandates Certain Business Reporting

The Corporate Transparency Act is a federal law that will require certain business owners to file with the United States Department of the Treasury, Financial Crimes Enforcement Network (FinCEN). Below is a summary of this new rule compiled from the Beneficial Ownership Information Reporting  and the Beneficial Ownership Information Reporting Requirements.

What is the Corporate Transparency Act (CTA)?

National Defense Authorization Act for Fiscal Year 2021 (NDAA), relates to national defense but Division F of the NDAA includes the CTA as well as the Anti-Money Laundering Act of 2020 (AMLA).

What is the purpose of the CTA?

According to federal papers, the CTA is to identify illicit actors using corporate structures to obfuscate their identities and launder their gains through the U.S. financial system. The United States lacks “a centralized or complete store of information about who owns and operates legal entities within the United States.”  The CTA’s beneficial ownership information (BOI) reporting provisions will “assist law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States.”

Who enforces the CTA?

The CTA authorizes FinCEN to collect “information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls.” FinCEN issued its final rule last year requiring certain entities to file with it reports that identify two categories of individuals: the beneficial owners of the entity, and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business.

Who is subject to reporting?

The CTA establishes “uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States.” 

What is a BOI Reporting Company?

There are two types of  BOI reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a 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 the filing of a document with a secretary of state or any similar office.

Under the rule, there are numerous exemptions from the definition of “reporting company.”

What is a BIO Beneficial Owner?

BOI beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines the terms “substantial control” and “ownership interest.” The CTA, exempts five types of individuals from the definition of “beneficial owner.”

Who is a BIO Company Applicant?

The rule does not require reporting companies existing or registered at the time of the effective date of the rule to identify and report on their company applicants. In addition, reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information.

However, the rule defines a company applicant to be only two persons:

the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.

the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

How to file BOI reports?

When filing BOI reports with FinCEN, the rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document). Additionally, the rule requires that reporting companies created after January 1, 2024, provide the four pieces of information and document image for company applicants.

If an individual provides their four pieces of information to FinCEN directly, the individual may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a BOI report in lieu of the required information about the individual.

What is the effective date of the CTA?

The effective date for the rule is January 1, 2024.

Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.

Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

This article is for educational purposes only.