What Your Business Needs to Know about the Corporate Transparency Act

The Financial Crimes Enforcement Network (FinCEN) has recently implemented new rules regarding Beneficial Ownership Information Reporting. On January 1, 2024 the rule requiring beneficial ownership information (BOI) reporting under the Corporate Transparency Act went into effect. As originally written, the BOI reporting rule provided that a domestic reporting company created on or after January 1, 2024 or a foreign reporting company first registered on or after January 1, 2024 must file its initial beneficial ownership information report with the FinCEN within 30 calendar days of receiving notice of its creation or registration.

On November 29, 2023, FinCEN issued a final rule to extend the deadline for filing initial beneficial ownership Information reports for domestic and foreign reporting companies created or registered to do business in the United States on or after January 1, 2024 and before January 1, 2025 from within 30 calendar days of receiving notice of its creation or registration to within 90 calendar days of receiving notice of its creation or registration.

Understanding Beneficial Ownership:

Beneficial ownership refers to the individuals who ultimately own or control a legal entity, such as a company. The disclosure of beneficial ownership is a critical tool in preventing illicit financial activities, money laundering, and the financing of terrorism.

Key Changes in Reporting Rules:

Expanded Definition of Beneficial Owner:

• FinCEN's new rules broaden the definition of beneficial owners to include individuals who have substantial control over the legal entity, not just those with significant ownership interests. This expansion aims to capture a more comprehensive view of those who influence or control business decisions.

Reporting Requirements for Reporting Companies:

• Certain entities, known as "reporting companies," are required to submit beneficial ownership information to FinCEN. This includes details such as names, addresses, dates of birth, and Social Security numbers of beneficial owners.

Recordkeeping Obligations:

• Reporting companies are now obligated to maintain records of beneficial ownership information for a period of five years after the entity is dissolved. This ensures that historical data is accessible for regulatory purposes.

Increased Penalties for Non-Compliance:

• FinCEN has imposed substantial penalties for non-compliance with the reporting rules. Businesses failing to meet their obligations may face severe financial consequences, emphasizing the importance of adhering to the new regulations.

When a company needs to disclose its beneficial ownership information depends on when the company was created.

• One-year rule. Companies created before January 1, 2024. A company created or registered to do business before January 1, 2024 will have until January 1, 2025, to file its initial beneficial ownership information (BOI) report.
• 90-day rule. Companies created on or after January 1, 2024. A company created on or after January 1, 2024 will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report.
• 30-day rule. Companies created on or after January 1, 2025. A company created on or after January 1, 2025 will have 30 calendar days to file its initial BOI report.

Required Information to Report:

• Full legal name of the company
• Company's business address (P.O. boxes and/or an attorney's office are not accepted)
• State or jurisdiction where the company was formed or first registered
• The taxpayer identification number and an identity document, such as the Articles of Incorporation or Organization

Required Information about Beneficial Owners to Report:

• Full Legal name and DOB
• Home address
• Photocopy of drivers license or passport

How to Report Beneficial Ownership Information:

• Download a copy of the BOIR form and upload it to the FINCEN site
• Use FINCEN's BOIR online platform to report

Penalties for Failing to Report: 

Failing to comply with the reporting requirements can result in penalties for the reporting company, senior officers of the reporting company, and beneficial owners.

Self-correcting measures. If a person has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report, then the Corporate Transparency Act creates a safe harbor from penalty.

Willful failure. The willful failure to report complete or updated BOI to FinCEN, or the willful provision of or attempt to provide false or fraudulent BOI, may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fail to file a required BOI report may be held accountable for that failure.

Providing false or fraudulent BOI could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document. Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.