Legal Update: Corporate Transparency Act

How to navigate this new regulatory landscape.

On January 1, 2024, the 2021 Corporate Transparency Act’s (the “CTA’s”) requirement to file Beneficial Ownership Information Reports (“BOI Reports”) went into effect.  Under the CTA, any entity created by filing documents with a government authority (a “Reporting Company”) is required to file a BOI Report with the Financial Crimes Enforcement Network (“FinCEN”) through FinCEN’s website (here), unless specifically excluded from doing so.  In other words, most entities, excluding sole proprietorships or unregistered general partnerships, are Reporting Companies and are required to file BOI Reports.  Due to the vague wording of the law, the heavy penalties for violations, and the lack of enforcement precedent, if there is a question as to whether an exemption applies, you should assume it does not.

A Reporting Company must file an initial BOI Report according to the below schedule, and after the initial report is submitted, an updated report must be filed within 30 days of any change to the required information in the initial report. Although the CTA is intended to prevent criminal organizations from laundering money through corporate shell transactions, the consequences for violations and non-compliance by legitimate actors include a civil fine of up to $500/day for each day the violation continues. Further, violators can be subject to criminal liability, including a $10,000 fine and up to a two-year prison sentence. Violations include both failing to file a BOI Report and filing incorrect BOI Reports.  Those liable for violations include the Reporting Company itself, the individual filing the BOI Report, any person that willfully provides false information to the filer, anyone who causes the Reporting Company to fail to file a BOI Report, and any senior officer of the Reporting Company. Obviously, this creates a substantial risk of heavy penalties for the unwary and the uninformed.

Regarding the timeframe for submitting an initial BOI Report, the CTA provides different deadlines based on when the Reporting Company was created.

• For Reporting Companies created prior to January 1, 2024, the initial BOI Report must be submitted by January 1, 2025.
• For Reporting Companies created on or after January 1, 2024, but prior to January 1, 2025, an initial BOI Report must be submitted within 90 days of receiving notice of the Reporting Company’s creation or registration. This is the earlier of either the government authority giving public notice of the Reporting Company’s creation or receipt of actual notice from the government authority.
• For Reporting Companies created after January 1, 2025, an initial BOI report must be filed within 30 days of receiving notice of the Reporting Company’s creation or registration.

At a high level, a BOI Report must include information on both the Reporting Company and every individual who “directly or indirectly owns or controls the Reporting Company.” This broad definition includes any person owning 25% or more of the Reporting Company, along with all senior officers, anyone with authority to appoint or remove any officer or a majority of the board of directors, all “important decision makers,” and anyone else able to exert “substantial control over the Reporting Company.”  Given the seemingly intentionally vague language and circular definition of “substantial control,” paired with the steep penalties for non-compliance, it is our recommendation that all officers and senior managers of a company should be included, as well as anyone having any substantial power or influence over business decisions. This could include family members, and/or outside consultants. The CTA is poorly worded and, as noted above, has yet to be litigated to determine the actual bounds of the law; however, we have no doubt that it will be heavily litigated upon enforcement. Therefore, we highly recommend overreporting if there is any question or doubt as to whether an individual should be included on a BOI Report.  There are no penalties for overreporting, but there are serious penalties for underreporting and noncompliance.

Regarding the specific contents of the BOI Reports, reports must include the following information related to the Reporting Company itself:

• Legal name.
• Any trade names, “doing business as”, or “trading as” names.
• The current street address of the principal place of business for United States companies. For foreign companies, the principal place of business where the company conducts its U.S. operations.
• Its jurisdiction of formation or registration.
• Its Taxpayer Identification Number.
• Whether the BOI Report is an initial report, a corrected report, or an updated report.

For beneficial owners of the Reporting Company, the BOI Report must include the following information about the individual:

• Legal name.
• Date of birth.
• Residential address.
• An identifying number from an acceptable government identification document (such as a non-expired driver’s license or passport) and the name of the issuing state or jurisdiction of the identification document.
• An image of the identification document containing the identifying number above.

Further, for Reporting Companies formed on or after January 1, 2024, the BOI Report must also include information on the Company Applicant.  The Company Applicant is the person who directly files the documents on behalf of the Reporting Company and, if more than one person is involved, the individual primarily responsible for directing or controlling the filing.  Therefore, if we created a business for you after January 1, 2024, we must be included on the initial BOI Report.  If a Company Applicant is required, the following information about the individual(s) must be included:

• Legal name.
• Date of birth.
• An identifying number from an acceptable government identification document.
• An image of the identification document containing the identifying number above.

We will be reaching out to inform our current and previous clients of these regulatory changes to help prevent anyone from being caught unaware of these new requirements.  Although the penalties for noncompliance are steep, the process of filing the BOI Reports should not be overly complicated for most Reporting Companies. 

If you intend to file BOI Reports yourself, we suggest you refer to FinCEN’s Small Entity Compliance Guide (here). Alternatively, we are happy to assist with and/or handle filing the initial BOI Reports for our clients; however, as there are heavy penalties for submitting inaccurate reports, we may require you to certify the accuracy of the information you provide to us and agree to indemnify us for any damages related to inaccuracies before we agree to submit BOI Reports on your behalf.

As always, we appreciate your trust in us, and we look forward to working with you to navigate this new regulatory landscape.