Beneficial Ownership Information (BOI)

Beginning January 1, 2024, millions of entities operating in the US will need to report beneficial ownership information (BOI). The Corporate Transparency Act (CTA) requires reporting organizations to submit BOI to the Financial Crimes Enforcement Network (FinCEN) and notify the agency of any changes to the information as they occur.

Understanding the Corporate Transparency Act (CTA)

In the ever-evolving landscape of corporate governance and regulatory reporting, business leaders must stay informed about new regulations that may impact their operations. One such regulation that has recently garnered substantial attention is the Corporate Transparency Act (CTA).

Designed to enhance transparency and combat illicit financial activities, the CTA requires entities to report the individuals with ownership and controlling stake to the federal government. In this article, we will dive into the specifics of the Corporate Transparency Act, exploring what it entails, its objectives, and, most importantly, how it will affect your business.

What Does the Corporate Transparency Act Do?

The Corporate Transparency Act aims to achieve several key objectives, including:

• Combatting Illicit Financial Activities: By requiring beneficial ownership reporting, the CTA seeks to deter criminals from using anonymous entities to conduct illegal financial transactions. This increased transparency helps law enforcement agencies identify and investigate suspicious activities more effectively.
• Enhancing National Security: The CTA contributes to national security by providing valuable information to intelligence agencies, enabling them to detect and combat threats from illicit financial networks. By closing loopholes that previously allowed for anonymous ownership, the Act improves the ability to identify potential risks and take appropriate action.
• Protecting Legitimate Businesses: While the Corporate Transparency Act imposes new reporting obligations, it also protects legitimate businesses from unfair competition. By minimizing the use of shell companies for illegal purposes, the Act promotes a level playing field and fosters an environment of trust and integrity in business transactions.

How Does the Corporate Transparency Act Impact Your Business?

If you are a business registered in the United States, it’s essential to understand how the Corporate Transparency Act will affect your operations. Here are some key points to consider:

Reporting Requirements

Covered legal entities must comply with new reporting requirements established by the CTA. This includes submitting beneficial ownership information to FinCEN within specified timeframes.

Timeframes for Initial Reporting

The reporting requirement is effective on January 1, 2024. FinCEN will begin accepting beneficial ownership information reports on that date. Any company created or registered to do business in the US that meets the definition of a reporting company and is not exempt from that definition will be required to file before January 1, 2025.

Any company created or registered to do business in the US in 2024 will have 90 calendar days from the date it receives actual or public notice that the creation or registration of the reporting company is effective while companies created or registered after 2024 will have 30 days.

Updates to Beneficial Ownership Information

In addition to initial reporting, there is also an obligation to keep the information updated. Changes to previously reported information must be reported to FinCEN within 30 days after a change occurs. This includes any changes in the beneficial owners or their information, such as a change in address or contact details. The onus is on the reporting companies to ensure their information is current and accurate.

Examples of changes that would require an updated beneficial ownership information report include:

• Any change to the information reported for the reporting company, such as registering a new business name.
• A change in beneficial owners, such as a sale that changes who meets the ownership interest threshold of 25 percent or which changes the individuals with substantial control.
• Any change to the entity’s information or any previously reported individual’s name, address, or unique identifying number previously provided to FinCEN. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.

Exemptions from Reporting

While the CTA broadly applies to corporations and LLCs, there are specific exemptions to consider. For instance, more heavily regulated entities, such as banks, credit unions, investment companies, and entities already required to report certain information to the federal government are exempt from the CTA’s reporting requirements. (Read the full list below.) Each entity must review the CTA and its regulations to determine if they fall under an exempt category. All organizations should consult with their legal counsel to understand their reporting obligations and possible exemptions under the CTA.

Penalties for Non-Compliance

Failure to comply with the reporting obligations under the CTA can result in significant penalties. These penalties may include fines of $500 per day, up to $10,000 or even criminal charges. Therefore, businesses must ensure timely and accurate reporting.

Preparing for Beneficial Ownership Reporting

To comply with beneficial ownership reporting requirements, organizations should take proactive steps to prepare themselves. Here are some practical instructions to guide you through the process:

1. Internal Review: Conduct an internal review of your company’s structure and ownership hierarchy to identify all potential beneficial owners.
2. Documentation Gathering: Collect the necessary documentation and information for each beneficial owner, such as identification documents, proof of address, and relevant corporate records.
3. Centralized Record-Keeping: Establish a centralized system or database to record and maintain accurate beneficial ownership information. The Records Manager software included as part of our Software Suite offers an ideal solution to this challenge, enabling you to track ownership across all of your entities.
4. Regular Updates: Ensure your records are up-to-date by periodically reviewing and verifying the provided information. Records Manager does what spreadsheets can’t – track dynamic ownership and controlling stakes across multiple entities at once.
5. Compliance Training: Train relevant staff members on the importance of reporting accurate beneficial ownership information and provide guidelines for ongoing compliance. Granting your entire team access to the Records Manager software module is a great way to get started.

By following these steps, organizations can streamline their reporting processes and demonstrate their commitment to transparency and compliance.

What Is It and What Does It Mean For Your Business?

The Corporate Transparency Act (CTA) is a federal law enacted in 2021 as part of the National Defense Authorization Act. Its primary objective is to prevent money laundering, terrorism financing, and other illicit financial activities by promoting transparency within corporate structures.

How Does the Corporate Transparency Act Accomplish its Goals?

Beneficial ownership reporting is a vital tool for achieving the CTA’s objectives. Beneficial owners are individuals who have substantial control over or receive substantial economic benefits from a legal entity. Beneficial ownership reporting requires corporations and LLCs to disclose the identities of their beneficial owners, those who exercise substantial control or own 25% or more of the entity. By revealing the individuals behind these entities, it becomes more challenging for criminals to hide illegal activities behind anonymous shell companies.

For legitimate businesses, beneficial ownership reporting promotes a more transparent and trustworthy business climate. It helps prevent unfair competition from entities engaging in illicit activities, creating a more level playing field for all businesses. In this way, the CTA, through beneficial ownership reporting, fosters transparency, enhances security, and safeguards the integrity of business transactions.

Under the CTA, covered legal entities must report information related to their beneficial owners to FinCEN, a bureau of the US Department of Treasury responsible for combating financial crimes.

Examples of key information that must be reported include:

• The entity’s name and any trade or DBA names
• State of formation
• The entity’s federal EIN and ID number from its domicile Secretary of State
• The entity’s primary address within the US
• Full legal name of each beneficial owner
• Date of birth
• Current residential or business address
• Unique identifying number from an acceptable identification document (such as a driver’s license or passport)

Understanding Beneficial Ownership Under the CTA

Beneficial ownership refers to individuals who ultimately own or control a legal entity. These individuals have significant influence or economic interest in the entity, even if their ownership is indirect or obscured through layers of intermediaries. By identifying and disclosing beneficial owners, authorities can gain insights into the true stakeholders behind an organization.

To illustrate this concept, let’s consider a hypothetical scenario involving a company called ABC Inc. ABC Inc. is owned by XYZ Holdings LLC, which in turn is owned by John Doe. While ABC Inc. may publicly list XYZ Holdings LLC as its owner, it is essential to dig deeper and identify John Doe as the ultimate beneficial owner behind both entities.

Types of Information Required for Reporting

Businesses should be prepared to provide specific details about their owners when reporting beneficial ownership information. The Financial Crimes Enforcement Network (FinCEN) may require the following information:

1. Entity Information: The entity’s name and any trade or DBA names, state of formation, federal EIN and ID number from its domicile Secretary of State, and the entity’s primary address within the US.
2. Personal Information: Identify each beneficial owner by their full legal name, date of birth, current residential address, and Social Security number or passport number.
3. Ownership Percentage: Determine the percentage of ownership that each individual holds in the entity.
4. Citizenship or Nationality: Specify the citizenship or nationality of each beneficial owner.
5. Contact Details: Provide contact information such as phone numbers and email addresses for each beneficial owner.
6. Nature of Ownership: Describe the nature of the ownership relationship, indicating whether it is direct or indirect.

It is essential to note that these requirements may vary depending on the specific circumstances and the jurisdiction in which the organization operates. Therefore, businesses should stay updated with regulatory changes and consult professionals to ensure compliance.

Corporate Transparency Act Exemptions

While many businesses must comply with the Beneficial Ownership Reporting requirements laid out by the CTA, specific exemptions relieve certain organizations from filing. There are 23 types of entities that are exempt from reporting:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. Investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance producer
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. Large operating company
22. Subsidiary of certain exempt entities, including those described in exemptions 1, 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, or 21 above.
23. Inactive entity