An Overview of the Corporate Transparency Act

You may have heard there’s a new compliance filing at the federal government level called the Beneficial Owner Information report (“BOI”), which must be filed with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This new requirement was enacted by Congress in the Corporate Transparency Act (“CTA”) as an anti-money laundering tool.

There’s plenty to know and understand about the CTA’s new BOI filing. So much so that FinCEN has a landing page full of information available at https://www.fincen.gov/boi.

The good news is that the filing is free. The more challenging issues revolve around determining if you need to file and what information to include. So, let’s look at some of the high level issues. . .

First, the BOI is only required for reporting companies. This means that you filed a document with the Secretary of State or equivalent agency to form your entity. Examples include corporations, limited liability companies and limited partnerships.

Next, the BOI is required for reporting companies that have $5,000,000 or less in annual gross receipts or sales with 20 or fewer full time employees. While those sound straightforward, it’s a tad more complicated. For example, a reporting company could have 40 part time employees that equal 20 full time employees. There are also 23 exemptions that apply to help determine whether the reporting company is not required to file the BOI.

So once you know whether you must file a BOI, then when is it due? For reporting companies in existence prior to January 1, 2024, the BOI must be filed by January 1, 2025. For reporting companies formed beginning January 1, 2024 or later, the BOI is due within 90 days in 2024. Beginning in 2025, the timeframe for new reporting companies reduces to 30 days for the initial filing or for an amendment filing. If any information changes in a filed BOI, then you have 30 days to file a corrected or updated BOI report.

The bigger question you may have is what type information is required in the BOI report. You must report beneficial owners in the report. These are individuals who either directly or indirectly meet one of the following: 1) exercise substantial control over the filing entity OR 2) own or control at least 25% of the filing entity’s ownership interests.

The next question you probably have is who is considered to have substantial control. There are four different ways to qualify as an individual exercising substantial control. They are:

• Senior Officer: examples are president, chief financial officer, general counsel and others
• Authority to appoint or remove certain officers or a majority of directors
• Important decision-makers
• Any other form of substantial control

Now is a good time to start thinking about whether your filing entity is a reporting company under the CTA. While you have time to consider all of the various factors to determine whether you must file and what information must be included, it is important to understand. Feel free to reach out for a consultation to help you understand these new requirements for your business.