Beginning in 2024, many new and existing small businesses will be required to comply with the Corporate Transparency Act (CTA), a law designed to elucidate the otherwise shadowy world of money laundering. While there are exceptions for larger entities, tens of millions of small businesses must report information about their beneficial owners (BOI) to the Financial Crimes Enforcement Network (FinCEN). These reports may be submitted electronically to FinCEN via the BOI E-filing system. Visit https://www.fincen.gov/boi for more information. Failure to provide required reports may result in monetary and criminal penalties, including imprisonment. If you need assistance filing a BOI report or determining whether such a report is required, please contact Navigate Law Group.

Basic requirements:

Companies that do not meet any of the enumerated exceptions must report information about their BOI to FinCEN. Most reporting companies are corporations, LLCs, or entities formed in the United States by filing a document with a secretary of state or similar office, for states or Indian tribes. The Reporting Rule is found at 1010.380 in title 31 of the Code of Federal Regulations (CFR).

Reporting companies that were established through a secretary of state filing or similar prior to January 1, 2024, have until January 1, 2025 to submit their BOI report. Reporting companies that were established after January 1, 2024 and before January 1, 2025, have 90 days from their date of confirmed filing to submit their BOI report. Reporting companies established on or after January 1, 2025, have 30 days to submit.

BOI reports contain information about the reporting entity itself, as well as two categories of individuals: (1) Beneficial owners and (2) Company applicants.

Beneficial owners are individuals who ultimately own or control the companies in question. Those who either control at least 25% of a company or have substantial control over the company are considered beneficial owners. Every reporting company will be substantially controlled by one or more individuals, so every reporting company will be able to identify and report at least one beneficial owner to FinCEN. Substantial control may be exercised directly or indirectly. Substantial control is exercised through contracts, arrangements, understandings, relationships, or otherwise. “Indirect control” may entail controlling one or more intermediary entities that separately or collectively exercise substantial control over a reporting company, or through arrangements or financial or business relationships with other individuals or entities acting as nominees.

An individual exercises substantial control over a reporting company if the individual meets any of four general criteria:

  • (1) The individual is a senior officer.
    1. President, general counsel, CFO, CEO, COO, or any other officer who performs a similar function.
  • (2) The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company.
    1. Any individual with the ability to appoint or remove any senior officer or a majority of the board of directors or similar body.
  • (3) The individual is an important decision-maker.
    1. Any individual who directs, determines, or has substantial influence over important decisions made by the reporting company, including decision re business, finances, or structure.
  • (4) The individual has any other form of substantial control over the reporting company.
    1. Catch-all provision. Control exercised in new and unique ways can still be substantial (flexible corporate structures).

Additionally, all individuals who own or control at least 25% of the ownership interests of a company must be reported. Ownership interest are any of the following:

  • (1) Equity, stock, or voting rights;
  • (2) A capital or profit interest;
  • (3) Convertible instruments;
  • (4) Options or other non-binding privileges to buy or sell any of the foregoing;
  • (5) Any other instrument, contract, or other mechanism used to establish ownership.

There are five exceptions to the definition of “beneficial owner,” in which case such person need not be reported on the BOI report. General categories of such exceptions are: (1) minor children, (2) nominees, intermediaries, custodians, or agents acting on behalf of a beneficial owner (such as a tax prepare), (3) employees who are not officers and whose control over the company are derived from their employment status only, (4) inheritors with only a future interest in the company, and (5) creditors. Each exception is contingent upon further regulations; if you believe an exception applies, it is recommended that you contact Navigate Law Group for a complete analysis.

If the company previously qualified for an exemption but no longer qualifies, BOI reports are due within 30 calendar days of the date on which the exemption no longer applies.

Company applicants are individuals who directly file or are primarily responsible for the filing of the document that creates or registers the company. Each reporting company that is required to report company applicants will have to identify and report to FinCEN at least one company applicant, and at most two. All company applicants must be individuals. Companies or legal entities cannot be company applicants.

Specific Information Required

Reporting Company

  • Full Legal Name
  • Trade name, assumed business name (ABN), or “doing business as” (DBA)
      • Report all trade names or ABN/DBAs
  • Complete current U.S. address
      • Principal place of business, or the primary location in the U.S. where the company conducts business if primary place of business is foreign.
  • State, tribal, or foreign jurisdiction of formation
      • Foreign reporting companies must also report jurisdiction of first registration.
  • IRS Taxpayer Identification Number (TIN) (including employment identification number (EIN))

Each Beneficial Owner and Company Applicant

  • Full legal name
  • Date of birth
  • Complete current address
  • Unique identifying number and issuing jurisdiction from, and image of, one of the following current and valid documents:
      • U.S. passport; state driver’s license; identification document issued by a state, local government, or tribe; or, if an individual does not have any of the above, a foreign passport.
  • Alternatively: If an individual has obtained a FinCEN identifier and provided it to a reporting company, the reporting company may include such FinCEN identifier in its report instead of the information required about the individual.

Reporting Exemptions

23 types of entities are exempt from the reporting requirement. The general exemption categories are as follows: 

Exemption No. Exemption Short Title
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
23 Inactive entity

Note: These exemption categories are contingent upon a number of additional regulations. If you believe your company is subject to an exemption, it is recommended that you contact Navigate Law Group for a complete analysis.

Notable Exemptions

Exemption number 21 re large operating companies must meet all six of the following criteria:

 

  • (1) The entity employs more than 20 full time employees, generally meaning in a calendar month an employee is employed an average of at least 30 hours per week with an employer (26 CFR 54.4980H-1(a) and 54.4980H-3).
  • (2) More than 20 full-time employees of the entity are employed in the United States (31 CFR 1010.100(hhh)).
  • (3) The entity has an operating presence at a physical office within the United States. “Operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.
  • (4) The entity filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales. If the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, refer to the consolidated return for such group.
  • (5) The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.
  • (6) When gross receipts or sales from sources outside the United States, as determined under Federal income tax principle, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000.

Exemption number 23 re inactive entities qualify for an exemption if all six of the following criteria apply:

 

  • (1) The entity was in existence on or before January 1, 2020.
  • (2) The entity is not engaged in active business.
  • (3) The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially. “Foreign person” means a person who is not a United States person. A United States person is defined in section 7701(a)(30) of the Internal Revenue Code of 1986 as a citizen or resident of the United States, domestic partnership and corporation, and other estates and trusts.
  • (4) The entity has not experienced any change in ownership in the preceding twelve-month period.
  • (5) The entity 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 twelve-month period.

Penalties

Subject to some safe harbor rules, the willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in 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 may be held accountable for reporting failures. 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.

Updated Reports

If there is any change to the required information about your company or its beneficial owners in a BOI report that your company filed, your company must file an updated BOI report no later than 30 days after the date on which the change occurred.

Examples of changes that would require an updated BOI report:

    • – Any change to the information reported for the reporting company, such as registering a new DBA.
    • – A change in beneficial owners, such as a new CEO, a transfer of equity that increases someone’s ownership beyond 25%, or the death of a beneficial owner.
    • – Any change to a beneficial owner’s name, address, or unique identifying number provided in a BOI report.

If your company filed a BOI report and later qualifies for an exemption from the reporting requirements, your company should file an updated BOI report to indicate that it is newly exempt from the reporting requirements.

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The Corporate Transparency Act and its BOI reporting requirement may appear daunting, but we are here to help. If you have questions about the report or the Corporate Transparency Act in general, please contact the professionals at Navigate Law Group. We can help you prepare required reports or determine whether an exemption applies. Additional information may be found below.

More Information Available At:
https://boiefiling.fincen.gov/

Small Entity Compliance Guide:
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

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James C. Howe

James C. Howe

Retired

​Estate Planning | Estate & Trust Administration | Business Law | ​Real Estate

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Disclaimer

Every legal issue is very unique. Accordingly, the information in this blog is intended as general education material and not as legal advice. If you think you may have a legal issue, you should consult an attorney.