In 2021, Congress enacted the Corporate Transparency Act (the “Act”), legislation intended to track, stop, and prevent illegal finance in the United States. In an effort to track possible use of corporate structures to hide illegal activity, the Act endeavors to record certain information regarding the beneficial owners of all active corporations and companies in the United States. The most significant change this has created for most business owners, members of LLCs, company officers, and incorporators, is that all LLCs and Corporations must now report certain information about who owns and controls all such businesses.
Reporting Companies
This reporting requirement went into effect on January 1, 2024. All companies classified as “reporting companies” must submit the required information to the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. According to the Act, a business is considered a reporting company if it is:
- A corporation, limited liability company, or 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 state or Indian Tribe; or
- An entity, including corporations and limited liability companies, formed under the law of a foreign country that has registered to do business in any U.S. state or Indian tribe by the filing of a document with a secretary of state or any similar office.
Exemptions
Certain exemptions apply to the reporting requirements according to the Act: securities reporting issuers, governmental authorities, banks, credit unions, depository institution holding companies, money services businesses, brokers and dealers in securities, securities exchange or clearing agencies, investment companies or advisers, venture capital fund advisers, insurance companies, state-licensed insurance producers, accounting firms, public utilities, financial market utilities, pooled investment vehicles, tax-exempt entities, entities assisting tax-exempt entities, large operating companies, subsidiaries of certain exempt entities, and inactive entities are all exempt from the reporting requirements, as are “Exchange Act registered entities” and “Commodity Exchange Act registered entities.” Exemptions generally apply to businesses engaged in some types of financial work that is otherwise regulated and businesses that are either publicly traded or meet a size threshold based on the business it conducts. All owners, members, and officials involved in a business that may be considered a “reporting company” should research whether an exemption applies to their business.
Who Is a Beneficial Owner?
The Beneficial Ownership Information report requires disclosure of personal information for all beneficial owners and company applicants of reporting companies. A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests. Because beneficial owners must be individuals, legal entities such as trusts or corporations are not considered beneficial owners. An individual exercises substantial control over the reporting company if:
- The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function);
- The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company;
- The individual is an important decision-maker for the reporting company; OR
- The individual has any other form of substantial control over the reporting company (See FinCEN’s Small Entity Compliance Guide)
Who Is a Company Applicant?
Company applicants only need to be reported for companies created on or after January 1, 2024. A company applicant is the individual who directly files the document that creates or registers the company, or the individual primarily responsible for directing or controlling that filing if more than one person is involved.
What is In the Report?
The Report contains information about the business, its beneficial owners, and (if the business was created or registered on or after January 1, 2024) its company applicant.
Information regarding the business includes:
- The business’s legal name;
- Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States, or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United;
- Jurisdiction of formation or registration of the business; and
- The business’s Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).
For each beneficial owner, the business will need to provide:
- The individual’s name;
- Date of birth;
- Residential address; and
- An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.
For each company applicant, the business will need to provide:
- The individual’s name;
- Date of birth;
- Address; and
- An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.
For individuals involved in multiple businesses, either as a beneficial owner or company applicant, it may be wise to apply for a FinCEN ID, which would record all necessary information and link it to applicable businesses via this ID.
Deadlines
Reporting companies created or registered prior to January 1, 2024 initially had until January 1, 2025 to file the required beneficial ownership information report. However, pursuant to a notice published on February 18, 2025, FinCEN revised the deadline for filing BOI reports to March 21, 2025. The new deadline was issued as a result of a court ruling which lifted an injunction that had previously prevented FinCEN from requiring the filing of BOI reports nationwide. Reporting companies created on any date in 2024 have 90 calendar days after receiving notice of the company’s creation or registration, such as a confirmation of filing from the Secretary of State, to file their initial report. Reporting companies created or registered one or after January 1, 2025 will have 30 calendar days after receiving notice of the company’s creation or registration to file their initial report.
There is no annual reporting requirement for the BOI report; businesses should, however, update the report upon changes to beneficial owner information and make corrections as necessary.
Penalties for Non-Compliance
Someone who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500.00 for each day that the violation continues. This amount is adjusted annually to account for inflation.
Someone who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.00. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
Both individuals and businesses can be held liable for violating the reporting requirements and the liable person or entity may be either the person who files false information or anyone who willfully provides the filer with false information with the intention that it be reported.
If an individual corrects a mistake or omission within 90 days of filing a report, they may avoid being penalized.
Where Do I File a Report?
If you are ready to complete the BOI report, you can visit: https://fincen.gov/boi and complete the report online.
Further information about the reporting requirement can be found at: https://www.fincen.gov/boi-faqs#K_1