We want to inform you about significant changes that may impact your business due to the enactment of the Corporate Transparency Act (the “Act”), which became effective on January 1, 2024. This legislation is part of the National Defense Authorization Act for Fiscal Year 2021, and it introduces new reporting requirements for certain entities, known as “Reporting Companies.”
What You Need to Know
Reporting Obligations:
The Act requires Reporting Companies to file Beneficial Ownership Information (“BOI”) reports with the Financial Crimes Enforcement Network (“FinCEN”). These reports must include information about the company’s Beneficial Owners and, if the company was created after January 1, 2024, its Company Applicants. Failure to report the required information could result in civil penalties of up to $500 per day until the information is corrected, or even criminal penalties including up to 2 years of imprisonment or a $10,000 fine.
Deadlines for Reporting:
- Entities Created On or After January 1, 2024: Initially, a 30-day reporting deadline was imposed. However, FinCEN’s final regulations, published on November 30, 2023, extended this deadline to 90 days after the entity’s creation.
- Entities Existing Before January 1, 2024: You have until January 1, 2025, to file your BOI report.
- Entities Created On or After January 1, 2025: These entities must file their initial BOI report within 30 days of creation.
- Pending Legislation: There is proposed legislation that could extend the filing deadline for entities existing prior to January 1, 2024, to January 1, 2026. However, until this legislation is passed, the current deadline remains January 1, 2025.
Who Is Required to Report?
A Reporting Company is broadly defined as any entity formed by filing with a secretary of state or any foreign entity registered to do business in the United States by filing with a secretary of state. This includes most privately owned businesses, such as corporations, LLCs, and limited partnerships. General partnerships, sole proprietorships, and trusts are exempt since they do not file with a secretary of state.
Information to Be Reported:
Each Reporting Company must disclose the following:
- Legal name and any trade names
- Principal business address
- Jurisdiction of Formation
- Taxpayer identification number
- Information on Beneficial Owners
Beneficial Owners Defined:
The Act defines Beneficial Owners through two tests:
- Substantial Control Test: Individuals who exercise substantial control over the company, such as CEOs, Presidents, or those with authority to make major decisions, must be reported.
- 25% Ownership Test: Individuals who own or control at least 25% of the company’s ownership interests must also be reported.
Key Considerations for Trusts and Estates
For trust and estate clients, it’s important to note that:
- Trustees with control over 25% or more of a Reporting Company’s assets are considered Beneficial Owners.
- Beneficiaries with the ability to withdraw or control a substantial portion of a trust’s assets (if the trust owns 25% or more of a Reporting Company) are also deemed Beneficial Owners.
Next Steps
Given the Act’s complexities and broad applicability, we strongly recommend that you review these requirements in detail and consider their implications for your business.
For additional guidance, visit FinCEN’s website at www.fincen.gov/boi to review the Beneficial Ownership Information Reporting Frequently Asked Questions.
Thank you for your attention to this important matter.