The Corporate Transparency Act (CTA), which was enacted in 2021, imposes strict reporting requirements on many U.S. business stakeholders beginning in January 2024. Those who maintain ownership within entities deemed as reporting companies are required to report beneficial ownership information (BOI) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
“Part of their goal is to get a look at the underlying owners of business entities that may be a front for criminal behavior,” says Lucas Murray, a Partner at Buckingham, Doolittle & Burroughs LLC.
All existing entities that are required to report must file BOI reports for their beneficial owners no later than January 1, 2025, or face civil penalties of up to $500 per day, criminal fines of up to $10,000, or imprisonment of up to two years. Such reports may be required sooner if the entity was formed on or after January 1, 2024.
Smart Business spoke with Murray about the CTA filing requirements and what qualifying companies must do before the deadline.
Who needs to file and what needs to be filed?
Reporting companies include domestic reporting companies, which are corporations, LLCs and any other entities on file with a secretary of state in the U.S. There are also foreign reporting companies formed under the law of a foreign country that have registered to do business in the U.S.
A beneficial owner — whose information is being reported — is someone who either owns at least 25 percent of a reporting company’s ownership interests or maintains substantial control over a reporting company, such as a senior officer.
Non-exempt companies’ BOI information required in the reporting includes the owners’ full legal name, date of birth, residential address and identification number. The company application that must be filed includes information such as the company’s legal name, all trade names, formation state, principal place of business address and taxpayer identification number.
Filing can be done directly on the FinCEN website. Many small business owners of single-member LLCs or a single-member real estate holding company are capable of filing the form on their own, but many business owners are asking their attorneys for support, since they likely have a process in place for these filings already.
Who does not need to file?
There are 23 exemptions that would exclude certain types or sizes of businesses from needing to file. Among the more notable exemptions include the large operating company exemption. This applies to businesses that maintain a physical presence in the U.S., have at least 20 full time employees, and have gross receipts reported in their prior year tax return of $5 million or more.
Real estate holding companies, however, are likely required to file as they are likely to have less than $5 million in gross receipts and fewer than 20 employees on payroll.
The question of who should file becomes more complex within a corporate structure. For instance, there could be a holding entity and then an operating C Corp with multiple subsidiaries that also have subsidiaries used for various acquisitions or other business holdings. The exemption criteria needs to be considered throughout all those entities, with some being required to file while others do not. There are also instances in which some of those subsidiaries have ownership that differs from the ownership of the operating company. In the event that a non-exempt entity and exempt entity both own a subsidiary, the subsidiary must file even if the exempt entity owner does not have to file.
Who can help owners file?
Many business owners have been in contact with their legal teams to beat the filing deadline all year. However, there will likely be hundreds of filings legal teams will be asked to make on behalf of their corporate clients in the next two months. And because of that, owners need to act now because, if they’re contacted too late, these teams may not be able to meet the deadline.
The time to act is now. Failure to do so could lead to significant penalties.
INSIGHTS Legal Affairs is brought to you by Buckingham, Doolittle & Burroughs, LLC.
