The Corporate Transparency Act

The Corporate Transparency Act (CTA) was passed to give the federal government greater insight into the people who own, operate, and control many types of businesses. This act requires these persons and all “reporting companies” (including LLCs, LLPs, and corporations for which a specific exception does not apply) to report “Beneficial Ownership Information” (BOI) to the Financial Crimes Enforcement Network (FinCEN). In other words, if you own a significant portion of a business or have the ability to make important decisions for a business, you may be required to take action before the clock strikes midnight on December 31, 2024. 

Not every entity falls under the scope of the CTA. For example, entities with more than twenty (20) employees and over five ($5) million dollars in revenue, certain types of dissolved organizations, entities that were created outside of government knowledge (for example, a sole proprietorship that has not registered with anyone), and various types of banking, insurance, and not-for-profit companies may fall outside the scope of the act. However, if the act applies, its ramifications are significant. 

All new entities that fall under the act must file with FinCEN within ninety (90) days of creation. All entities that were created prior to January 1, 2024 are required* to file their initial BOI reports by December 31, 2024. Moreover, starting on January 1, 2025, any changes to the information reported must be updated within thirty (30) days of the change. This is an ongoing responsibility.

The BOI registration can be done online at: https://boiefiling.fincen.gov/boir/html You will need to supply contact information for the company (such as its tax ID number), the company applicant (ie: the person completing the form), and those with beneficial ownership or who exercise substantial control over the businesses (note that you will need to share a copy of the passport or driver’s license of each of these persons). I strongly recommend saving proof of registration once complete as the penalties for failing to register are severe. 

A beneficial owner is defined as an individual who owns or controls 25% or more of a company or has substantial control over the company. This could include the grantors or beneficiaries of a revocable living trust that owns or controls business interests. This percentage could be based on more than ownership, including any one or more of the following:  

• Equity, stock, OR voting rights; or 
• A capital or profit interest; or 
• Convertible instruments; or
• Options or non-binding privileges to buy or sell any of the foregoing; or
• Any other instrument, contract, or other mechanism to establish ownership.

 An individual exercises “substantial control’ and is also required to report BOI information 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); or
• The individual has authority to appoint or remove certain officers or a majority of the directors of the reporting company; or 
• The individual is an important decision-maker for the reporting company or has substantial influence over important decisions; or
• The individual has any other form of substantial control over the entity.

Failure to comply with reporting requirements could result in harsh penalties such as fines and potentially imprisonment. Penalties for failing to provide required information or providing false and misleading information include criminal penalties of imprisonment for up to 2 years and fines up to $10,000, as well as civil penalties up to $500 per day for each day that the violation continues. Penalties for unauthorized disclosure or use of BOI could result in criminal penalties of imprisonment for up to five years and fines up to $250,000. If there is a pattern of illegal activity, fines increase up to $500,000 and imprisonment up to 10 years. 

Please note that The Sauer Law Firm LLC assumes no responsibility for ensuring that clients have complied with the provisions of the Corporate Transparency Act (as many of these reporting requirements are personal and ongoing obligations).  While we are certainly happy to help provide you with education about the act, it is up to you to make both your initial and ongoing reports. More information about exemptions and other details of the act can be found at:https://www.fincen.gov/boi-faqs#C_2

*A version of this article was initially circulated on November 27, 2024. Since that time, a nationwide injunction has been put in place. However, a motion has been filed for a stay pending appeal – meaning that the December 31, 2024 deadline may continue to apply.