The Corporate Transparency ACT (CTA) was passed by Congress in 2021 to fight money laundering, terrorism financing, and other fraudulent activities by collecting ownership data for certain types of companies operating in the United States. Since criminal actors and organizations commonly use “shell” companies to hide the flow of their illegally obtained money, the CTA aims to shine some light on the true owners of these companies.
Under the CTA, small businesses
that qualify as “reporting companies” will have to submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes
Enforcement Network (FinCEN), that provides identifying information about the company’s
“beneficial owners.” With the data collected from these reports, FinCen will
create a national registry of reporting companies and their beneficial owners,
only accessible to law enforcement agencies and qualified financial
institutions.
Will my
business have to file a beneficial ownership report under the Corporate
Transparency Act?
The CTA generally defines reporting companies as any
“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” or ‘‘formed under the law of a
foreign country and registered to do business in the United States by the
filing of a document with a secretary of state or a similar office under the
laws of a State or Indian Tribe.” However, since the CTA’s purpose is focused
on companies that have little or no existing oversight, the CTA excludes many
types of organizations that are already regulated by or registered with
government agencies.
-
Publicly traded companies
-
Nonprofit organizations
-
Government entities
-
Companies in regulated industries
such as banks, credit unions, insurance companies, accounting firms, investment
advisors and public utilities
-
Large operating companies i.e.
companies that employ more than twenty employees, have earned more than $5
million in gross receipts or sales, and have an operating presence at a
physical location within the US
- Any subsidiaries of an exempted organization
While each business owner should
carefully check whether their company falls within one of these exemptions,
most small businesses in Southeastern Michigan can expect that their company
will be required to report.
Under the CTA, an individual
counts as a beneficial owner of an entity if they 1) “own or control not less
than 25 percent of the company’s shares or 2) “exercise substantial control
over the entity.” While determining someone’s ownership stake is usually fairly
straightforward, determining whether someone exercises “substantial control” is
a tougher question.
- Serve
as a “senior officer” of the company
- Have
authority over the appointment or removal of senior officers or a majority
of board directors
- Direct,
determine or have substantial influences over important company decisions
- Or have any other form of substantial control over the company.
The CTA does, however, exempt
certain types of people from counting as beneficial owners even if they would
otherwise qualify. These exemptions include people whose control over a company
derives solely from their employment, children who are minors, and individuals
acting as intermediaries or agents for another person.
Business
owners only have to file one initial beneficial ownership report. That report
will remain valid until they have to update or correct information within the
report. A required update to the report could be triggered by many small
events, including when a beneficial owner changes their address, changes their
name or acquires a new identification document. Required updates could also be
triggered by a new individual taking ownership of or substantial control over
the company.
How much
information a company is required to provide depends on whether the company was
formed before or after January 1, 2024.
For
Companies Formed Before January 1, 2024
All reporting companies must report five pieces of information about each one of the company’s beneficial owners:
-
Name
-
Date of birth
-
Residential address
-
The identifying number and issuer
from their non-expired U.S. driver’s license, U.S. passport or
government-issued identification document. If the owner does not have one of
these documents, a non-expired foreign passport can also be used.
-
A photo of the relevant
identification document
Reporting companies must also
provide several pieces of information about the company itself, including its:
-
Legal name
-
Trademarks and DBAs
-
Current U.S. business address
-
Employer Identification Number
-
The jurisdiction (state, tribe
etc.) where the company was formed or registered.
For
Companies Formed After January 1, 2024
In
addition to this information about the company and its owners, companies
created after January 1, 2024 must also submit information about the people who formed the company, including:
-
Name
-
Date of birth
-
Residential address
-
The identifying number and issuer
from their non-expired U.S. driver’s license, U.S. passport or
government-issued identification document. If the owner does not have one of
these documents, a non-expired foreign passport can also be used.
-
A photo of the relevant
identification document
The amount of time that your company has to file a
BOI report depends on when your company was created i.e. when you received
notice that your company’s registration or creation went into effect. Review
the following graphic to determine how much time your company has to file:
How do I file my report?
You can file a beneficial
ownership information report online for free through FinCEN’s secure filing
system located at: https://boiefiling.fincen.gov.
Once you
arrive at the website, select the option “File BOIR.” Any
person whom your reporting company authorizes to act on its behalf, including
an employee, owner or third-party agent, can file the report on the company’s
behalf. When submitting the report, the report’s filer will have to provide
their own contact information, including their name, email address and phone
number.
What happens if I fail to submit a report for my company?
Companies should make sure to
take the CTA’s reporting requirements seriously, as the penalties for
noncompliance are fairly severe. If someone intentionally provides false
information in their Beneficial Ownership Interest Report or fails to report
complete information to FinCEN, they can face up to $10,000 in fines and up to two years of imprisonment. However,
if someone submits inaccurate information, they can avoid crimi
nal and civil
liability if they correct their report within 90 days.
Will my
company’s information be available to the public?
No. Any information you provide to FinCEN will be
stored in a secured private database. Your information in that database will
only be accessible, upon an approved request, by:
- Federal agencies engaged in national security intelligence, or law enforcement activity
- State, local, or tribal law enforcement agencies authorized by a court to seek the information in a criminal or civil investigation
- Federal agencies on behalf of trusted foreign countries, as part of an investigation or prosecution by that country
- Financial institutions, with the consent of the reporting company, to facilitate the compliance of the financial institution with customer due diligence requirements
Properly reporting your company’s beneficial ownership
information should be taken seriously given the risk of fines and penalties
that come with noncompliance. If you have any more questions about how to
comply with the Corporate Transparency Act, feel free to review FinCen’s Small Entity Compliance Guide or watch
information videos on their website.