When I first came across the Corporate Transparency Act (CTA) of 2021, I thought, “Oh, this is probably a ‘Wall Street’ thing.” But, it turns out that it's actually an “almost everyone except Wall Street” thing.
The purpose of the act is to require the disclosure of the “beneficial ownership/beneficial owners” of business entities throughout the country to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) for anti-money laundering efforts of the U.S. government. The required information will be submitted online via a beneficial-ownership information (BOI) report.
FinCEN’s final regulations for the CTA became effective on Jan. 1, which is the start of all applicable timelines for entities to comply.
There are numerous definitions, requirements, exceptions and exemptions to the law and its regulations. However, generally, the beneficial owners (the persons who directly or indirectly own or control the company), the reporting company and the applicant (only for entities formed after Jan. 1) all must submit the required information.
Beneficial owner/ownership
A beneficial owner is any individual who, directly or indirectly:
- Exercises substantial control (a defined term) over a reporting company or
- Owns or controls at least 25% of the ownership interests (a defined term) of a reporting company.
Reporting company
A corporation, limited liability company or other similar entity that is:
- Created by the filing of a document with a secretary of state or a similar office under the law of a state or Indian tribe (“domestic”) or
- Formed under the law of a foreign country and registered to do business in the U.S. by the filing of a document with a secretary of state or a similar office under the laws of a state or Indian tribe (“foreign”).
Generally, if you filed a certificate of formation with the secretary of state (or a similar office in your state), you must submit the BOI report to FinCEN. However, some entities are not created through the filing of a document with the Secretary of State (or similar office in your state) and therefore are not required to report to FinCEN. This determination is state- or tribe-specific, and therefore you will need to know the laws of your state (or tribe) to determine whether your entity is considered a reporting company.
Exemptions
There are numerous exemptions in the CTA. However, just because one entity or person is exempt does not mean that other persons or entities are also exempt. FinCEN expects that every reporting company will be substantially controlled by one or more individuals, and therefore every reporting company will be able to identify and report at least one beneficial owner to FinCEN.
A list of exempt entities can be found on FinCEN’s website.
A list of exemptions for beneficial owners can be found in Chapter 2.4 of FinCEN’s Small Entity Compliance Guide.
Penalties
Additionally, there are both civil (fines up to $500 per day) and criminal (imprisonment up to two years) penalties for failure to comply.
Timing of reporting
- New entities created in 2024: Newly formed entities (formed during 2024) must report within 90 calendar days of their formation.
- New entities created in 2025: Newly formed entities (formed during 2025) must report within 30 calendar days of their formation.
- Existing entities: Must report within one year from Jan. 1, 2024.
- Updates: Must be reported within 30 calendar days from any change of the information formerly reported.
Information required
Most requested information is general (names, addresses, etc.), but you will also want to gather and upload the following:
- A form of ID: state-issued driver’s license, state/local/tribe-issued ID, U.S./foreign passport, etc.
- Tax IDs: employee identification number (EIN), social security number (SSN), individual identification number (ITIN), etc.
If you have multiple entities, you may consider applying for a FinCEN identifier. This is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN. An individual or reporting company may only receive one FinCEN identifier.
The identifier can be used on your reports rather than providing all the information on each report.
Note that, for individual beneficial owners, it is your residential address which is required, not a business address. This is the primary premise of the law – to identify the owners of businesses. So, while you likely could provide a business address for most – if not all – of your state filings related to your entity, you must provide your residential address for individual owners of your business for BOI purposes. If another entity is the owner of a business, then that entity’s business address is sufficient.
Continuing obligations
Finally, you must update your BOI report going forward if any of the reported information changes.
FinCEN has opened an online portal for submitting BOI reports. You can either complete a report online or fill out an interactive PDF, which you then upload.
Seek legal advice
If you have further questions, it is important to consult a legal professional to determine which of your business entities is a reporting company and which owners are beneficial owners that must be reported.
You can find more information using the following resources from FinCEN:
- FinCEN information page
- Final rule
- Answers to frequently asked questions
- Infographics about key filing dates
- Introductory video
- Detailed informational video
- Small Entity Compliance Guide
This article is provided for informational purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
