- What is the Corporate Transparency Act?
The Corporate Transparency Act (the "CTA") was enacted by Congress in January 2021 and its primary purpose is to prevent money laundering and other illicit activities by requiring companies formed or registered in the United States to disclose the names of the individuals who own or control the entity. The CTA requires entities to file a beneficial ownership information report with The Financial Crimes Enforcement Network ("FinCEN"), a division of the Treasury Department.
- Who is a beneficial owner?
A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls not less than 25 percent of the ownership interests of the entity. There are a few exceptions, such as the minor children of a beneficial owner or a person that is solely an employee of the reporting company.
- What information must a beneficial owner provide?
- Full legal name
- Date of birth
- Current, as of the date of report, residential or business street address *must be physical address
- Unique identifying number from an acceptable identification document defined as: (i) a non-expired U.S. passport; (ii) a non-expired identification document issued by a state, local government or Indian tribe; (iii) a non-expired driver's license issued by a state; or (iv) if the individual lacks all of the foregoing documents, a non-expired foreign passport.
- Image of document the unique identifying number came from.
- How do I provide the beneficial ownership to FinCEN?
The exact process has not been officially announced, but it will likely be a digital process that the Treasury Department will announce before the CTA goes into effect.
- What is a company applicant?
Company applicant is defined as the following 2 persons:
- the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
- the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
- What information does a company applicant need to provide?
- Full legal name
- Date of birth
- Current, as of the date of report, residential or business street address *must be physical address
- Unique identifying number from an acceptable identification document defined as: (i) a non-expired U.S. passport; (ii) a non-expired identification document issued by a state, local government or Indian tribe; (iii) a non-expired driver's license issued by a state; or (iv) if the individual lacks all of the foregoing documents, a non-expired foreign passport.
- Image of document the unique identifying number came from.
Important Note: Applicant information is NOT required to be reported for entities already formed or registered prior to the January 1, 2024, effective date.
- What information is a reporting company required to provide?
- its full legal name
- any trade or "doing business as" names,
- a complete current address consisting of: (i) in the case of a reporting company with a principal place of business in the United States, the street address of the principal place of business, and (ii) in all other cases, the street address of the primary location in the United States where the reporting company conducts business, *must be physical address
- the state, tribal or foreign jurisdiction of formation,
- for a foreign reporting company, the state or tribal jurisdiction where the company first registers, and
- the IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.
- What happens if I provide incorrect information to FinCEN?
If someone sends information that is incorrect or not up to date, there is a safe harbor up to 90 days if the correct information is sent in.
- What immediate action should I take?
At the present time there is no option to file reports and the mandate is not effective yet. There is no immediate action needed other than preparation.
We recommend the following preparatory actions:
- Review any entities you own or manage, and determine if they are exempt
- If they are not, begin the process of gathering the required information so that you are ready to report during 2024
- Signing up for CTA updates from RASi to stay informed of new developments
- How long will FinCEN hold the beneficial owner's information?
Information is required to be held onto for five years after termination or dissolvement.
- Is the beneficial owner information available to the public?
Beneficial owner information is confidential and not available to the public. Government employees, officers and financial employees will not be able to access the information.
- What are the penalties?
- $500 per day civil penalty
- $10,000 fine or 2 years imprisonment
- 90-day Safe harbor
- Are there any exemptions?
The final rule has 23 exemptions - a company that qualifies for an exemption is not considered a reporting company and does not have to file the BOI report.
Among the many exemptions are companies that are already regulated such as publicly traded companies; insurance companies; and broker-dealers. There is also a 'large operating company' exemption which applies to entities that (1) have 20 or more full time employees in the U.S., and (2) filed an income tax return in the previous year with at least $5 million in gross receipts or sales, and (3) have an operating presence or physical office within the U.S.
- Is there a report required for each state our company is registered?
A reporting company created or registered to do business before January 1, 2024, will
have until January 1, 2025 to file its initial beneficial ownership information report.
A reporting company created or registered on or after January 1, 2024, will have 30
days to file its initial beneficial ownership information report. This 30-day deadline
runs from the time the company receives actual notice that its creation or registration
is effective, or after a secretary of state or similar office first provides public notice of
its creation or registration, whichever is earlier.
Once this requirement has been met the reporting company will only need to submit an updated report to FinCEN if any of the previously reported information (with the exception of the comapny applicant information) changes.
Examples: Benefecial owner changes name and or address or entity changes name, domestic state, entity type, etc.
Otherwise there is no requirement to file a new report each time a company registers in a new state. Keep in mind however if an entity adopts a new DBA in the process of registering in a state, an update would need to be filed with FinCEN to report the new DBA being used.
- Does CTA apply to all entities or only corporations?
Any entity deemed as a "reporting companies" - will be required
to report their beneficial ownership information to FinCEN. There are two types
of reporting companies - domestic reporting companies and foreign reporting
companies.
A domestic reporting company is defined as -
- a corporation,
- a limited liability company, or
- any other entity created by the filing of a document with a secretary of state
or any similar office under the law of a state or Indian tribe.
A foreign reporting company is any entity that is -
- a corporation, limited liability company, or other entity formed under the
law of a foreign country, AND
- registered to do business in any U.S. state or in any Tribal jurisdiction, by
the filing of a document with a secretary of state or any similar office under
the law of a U.S. state or Indian tribe.
If you had to file a document with a state or Indian Tribal-level office such as a secretary
of state to create your company, or to register it to do business if it is a foreign company,
then your company is a reporting company, unless an exemption applies.
For the definitions of both domestic and foreign reporting companies, a "state" means
any state of the United States, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam,
the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the
United States.
**Entity should refer to reporting exemptions as well to confirm if they fit any of the 23 exemption requirements
- Are the S corporate requare to report the BOI?
Same as above - the requirement to report is not associated with the entity's tax status but rather, whether or not they meet the definition of a reporting company.
**Entity should refer to reporting exemptions as well to confirm if they fit any of the 23 exemption requirements
- Can the BOI also be the company applicant?
Yes, it is possible that a BOI also be considered a company applicant if they fit the requirement/description of a company applicant.
There can be up to two individuals who qualify as company applicants -
- the individual who directly files the document that creates, or first registers,
the reporting company; and
- the individual that is primarily responsible for directing or controlling the
filing of the relevant document.
No reporting company will have more than two company applicants. If only one
person was involved in filing the relevant document, then only that person should be
reported as a company applicant.
Only reporting companies formed or registered on or after January 1, 2024, will have to
report their company applicants. Companies created or registered before January 1,
2024, do not have to report their company applicants.
The following examples illustrate how to identify company applicants in common
company creation or registration scenarios.
Example 1: Individual A is creating a new company. Individual A prepares the necessary
documents to create the company and files them with the relevant state or Tribal office, either in person or using a self-service online portal. No one else is involved in preparing, directing, or making the filing. Individual A is a company applicant because Individual A directly filed the document that created the company. Because Individual A is the only person involved in the
filing, Individual A is the only company applicant. State or Tribal employees who
receive and process the company creation or formation documents should not be
reported as company applicants.
Example 2: Individual A is creating a company. Individual A prepares the necessary
documents to create the company and directs Individual B to file the documents with the
relevant state or Tribal office. Individual B then directly files the documents that create the company. Published: March 24, 2023 9 Individuals A and B are both company applicants-Individual B directly filed the documents, and Individual A was primarily responsible for directing or controlling the filing. Individual B could, for example, be Individual A's spouse, business partner, attorney, or accountant; in all cases, Individuals A and B are both company applicants in this scenario.
- Do Third Party Organizers (such as attorneys/law firms/resident agent) have to be the ones to provide their own identification when applying for an entity? And our personal information is now tied to that entity?
If that individual is the one who either directs the filing or directly submits the filing then yes, they would need to provide the required information for a company applicant to the reporting company to be included on the BOI Report.
For each individual who is a beneficial owner or a company applicant, a reporting company will have to report:
- The individual's name, date of birth, and address;
- A unique identifying number from an acceptable identification document; and
- The name of the state or jurisdiction that issued the identification document.
Address: For a beneficial owner, the reporting company must report the residential street address.
For a company applicant, the reporting company must report the individual's residential street address. However, if an individual engages in the business of corporate formation (e.g., as an attorney or corporate formation agent) and files the formation or registration document in the course of that business, then the reporting company must report the current street address of the company applicant's business. For example, if the company applicant is a paralegal who filed the document while working at a law firm, the reporting company must report the business address of the law firm where the paralegal worked when filing the document.
Identification Document: The list below sets out the forms of acceptable identification documents:
- A non-expired driver's license issued by a U.S. state. A "U.S. state" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.
- A non-expired identification document issued by a U.S. state or local government, or Indian Tribe that is issued for the purpose of identifying the individual. For example, a non-driver identification card issued by a state Department of Motor Vehicles would qualify because it is issued for identification purposes.
- A non-expired passport issued by the U.S. government; or
- If the individual does not have any of the three forms of identification document described above, the reporting company may provide the identifying number from a non-expired passport issued by a foreign government.
In addition, the reporting company must submit an image of the identification document associated with the unique identifying number reported to FinCEN.
- Have you had the opportuntity to see the reporting system firsthand?
Unfortuantely FinCEN has not provided any access to the BOSS site that is currently still in the process of being built.
- Is what you file with FINCEN publicly available?
No. The Corporate Transparency Act authorizes FinCEN to disclose beneficial ownership information in certain circumstances to six types of requesters:
- U.S. Federal agencies engaged in national security, intelligence, and law enforcement activities;
- State, local, and Tribal law enforcement agencies with court authorization;
- The U.S. Department of the Treasury;
- Financial institutions using beneficial ownership information to conduct legally required customer due diligence, provided the financial institutions have their customer consent to retrieve the information;
- Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; and
- Foreign law enforcement agencies and certain other foreign authorities who submit qualifying requests for the information through a U.S. Federal agency.
The Corporate Transparency Act imposes stringent access requirements and safeguards on each group of requesters.
- Under the 23 exempt entities, #23 is Inactive. Is that defined by revenue or expense? My entity has no revenue but is actively defending lawsuits. Is that entity Inactive?
The CTA exempts inactive entities from the BOI reporting requirement.222 In 31 CFR 1010.380(c)(2)(xxiii) of the NPRM, FinCEN reiterated the CTA's definition, proposed a title to the subsection for ease of reference, and proposed clarifications regarding the scope of the exemption. Specifically, FinCEN proposed to define an "inactive entity" as one that:
- was in existence on or before January 1, 2020 (i.e., the date of enactment of the CTA),
- is not engaged in active business,
- is not owned by a foreign person, whether directly or indirectly, wholly or partially,
- has not experienced any change in ownership in the preceding 12-month period,
- has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period, and
- does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
- What role will RASI play in helping lawyers help clients comply?
RASi will be launching CTAComply™, a secure online portal to assist with preparing and tracking your FinCEN report.
- Do any states already require a Beneficial Ownership Information form?
District of Columbia
Effective January 1, 2022, the District of Columbia requires all formation and all registration filings as well as biennial reports to include beneficial ownership information.
The law amended two sections of DC Code such as § 29-102.01. & § 29-102.11.
Click here to find out more details.
- What other state bills are in process or pending signature that relate to beneficial ownership reporting?
Currently, New York has a bill pending the governor's signature, while four other state bills pertaining to the disclosure of beneficial ownership information. Three out of the four bills are still in process.
California
Senate Bill 738 proposes to require foreign corporations and foreign LLCs to disclose personal information about the beneficial owners of these entities.
To learn more about this bill, please click here.
Senate Bill 594 would require beneficial owners of domestic corporations, domestic LLCs, foreign corporations, and foreign LLCs to disclose their names and addresses to the California Secretary of State.
To learn more about this bill, please click here.
Massachusetts
House Bill 3566 would require domestic and foreign LLCs to inform the Massachusetts Secretary of State office of beneficial ownership information.
For more information, please click here.
New York
New York legislatures passed this bill, requiring LLCs to disclose the beneficial owners of limited liability companies and certain information pertaining to the beneficial owners. This bill has not been signed by the governor yet and won't go into effect until 365 days after that signature is received.
To learn more about this bill, please click here.
South Dakota
Effective March 2023, House Bill 1189 requires entities to disclose whether they own agricultural land on their annual report filings. If they do own agricultural land, they must disclose if they have foreign beneficial owners.
For more information, please click here.
