Navigating the Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI) Reporting Requirements for Businesses

The Corporate Transparency Act (CTA) has set the stage for significant changes in business reporting requirements in the U.S., introducing strict guidelines on Beneficial Ownership Information (BOI) as part of its implementation. This article explores what the CTA and BOI reporting mean for businesses, focusing on who must comply, what information is needed, and the consequences of non-compliance.

Background on the Corporate Transparency Act (CTA)

Enacted in 2021, the Corporate Transparency Act aims to combat illicit financial activities like money laundering, tax evasion, and terrorism financing by requiring companies to disclose beneficial ownership information. The U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) enforces the CTA and collects BOI through the FinCEN Beneficial Ownership Information (BOI) Reporting System. With these efforts, regulators hope to increase transparency within private companies and reduce the potential for anonymous ownership, which can obscure illicit activity.

Who Must Report Under the Corporate Transparency Act?

The CTA requires most domestic and foreign corporations, LLCs, and other similar entities to disclose information about individuals who have significant control or substantial ownership over them. The criteria for beneficial ownership include:

- Ownership: Individuals who own 25% or more of the reporting company.

- Control: Individuals who exercise substantial control, directly or indirectly, over the company.

Notably, certain entities are exempt from these requirements. Publicly traded companies, certain regulated entities like banks, insurance companies, investment advisers, and other specific organizations (e.g., tax-exempt nonprofits) do not need to report beneficial ownership.

What Information Must Be Reported?

For each beneficial owner and company applicant (the person who files or registers the business), the CTA mandates reporting of:

- Full legal name

- Date of birth

- Address

- A unique identifying number, such as a driver’s license or passport number, along with a copy of the document

This information must be submitted to FinCEN upon formation or registration of the entity. Existing entities also face reporting requirements and will need to file BOI by a certain deadline.

Key Deadlines for BOI Reporting

The CTA establishes distinct deadlines for new and existing entities:

- New entities (formed after January 1, 2024) must submit BOI within 90 days of formation.

- Existing entities (formed before January 1, 2024) have until January 1, 2025, to comply with BOI reporting.

FinCEN is expected to issue additional guidance and provide a secure portal for these filings. The deadlines are strict, and companies should prepare early to gather and submit the necessary information promptly.

Penalties for Non-Compliance

Non-compliance with the CTA can lead to significant consequences. Companies failing to report BOI or providing inaccurate information may face civil penalties of up to $500 per day until the information is corrected. Intentional non-compliance, or filing false information, can result in criminal penalties, including fines up to $10,000 and imprisonment for up to two years.

Steps for Businesses to Prepare for BOI Reporting

1. Identify Beneficial Owners**: Determine individuals with 25% ownership or substantial control over the company.

2. Gather Required Information**: Ensure that you have the legal names, dates of birth, addresses, and identification documents for each beneficial owner and company applicant.

3. Develop a Compliance Strategy**: Establish internal processes for maintaining updated beneficial ownership information. Ensure that your business is equipped to update FinCEN should ownership or control change.

4. Monitor FinCEN Updates**: FinCEN may issue additional guidance on reporting requirements, and businesses should stay informed of any changes that may impact their obligations.

How Accountants Can Help with CTA Compliance

With the introduction of the CTA, businesses may benefit from working with accounting and legal professionals to ensure compliance. Accountants can help with data collection, recordkeeping, and submission of BOI, minimizing the risk of penalties due to incomplete or inaccurate information.

The Corporate Transparency Act represents a major shift in transparency requirements for U.S. businesses, and compliance with BOI reporting is crucial. Business owners should take proactive steps to prepare for these changes and seek professional guidance to navigate the complexities of the CTA.