corporate transparency act beneficial ownership

In 2021, Congress passed the Corporate Transparency Act creating a new beneficial ownership information reporting requirement for millions of businesses. This act is part of the U.S. government’s efforts to create transparency around company ownership to combat money laundering, terrorist financing, and other illicit activities. Beneficial ownership information reporting refers to the requirement of certain entities to report identifying information to the Financial Crimes Enforcement Network (FinCEN) about the individuals who directly or indirectly own or control the company.

Companies are required to report only if they meet the definition of a “reporting company” and do not qualify for an exemption. There are two categories of reporting companies, a “domestic reporting company” and a “foreign reporting company”:

1. Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
2. Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

There are 23 types of entities that are exempt from the reporting requirements:

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 entities 

An entity qualifies as a large operating company if all six of the following are true:

1. The entity employs more than twenty full-time employees.
2. More than twenty full-time employees are employed in the United States.
3. The entity has an operating presence at a physical office within the United States.
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 sales or gross receipts.
5. The entity reported its more-than-$5,000,000 in sales or gross receipts on the entity’s IRS Form 1120, 1120-S, 1065, or other applicable IRS form.
6. When sales or gross receipts from sources outside of the United States are excluded from the entity’s total sales or gross receipts, the amount remains greater than $5,000,000. 

An entity is considered a tax-exempt entity and not required to report if any of the following four criteria apply:

1. The entity is a business organization described in section 501(c) of the IRS Code of 1986 and is exempt from tax under the Code.
2. The entity is a business organization described in section 501(c) of the IRS Code of 1986 and was exempt from tax under the Code, but lost its tax exempt status less than 180 days ago.
3. The entity is a political organization as defined by section 527(e)(1) of the Code and is exempt from tax under section 527(a) of the Code.
4. The entity is a trust described in paragraph (1) or (2) of section 4947(a) of the Code.

A beneficial owner is an individual who either directly or indirectly; (1) owns or controls at least 25 percent of a reporting company’s ownership interests, or (2) exercises substantial control over a reporting company. 

An individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:

1. The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, 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 (or similar body) of the reporting company.
3. The individual is an important decision-maker for the reporting company.
4. The individual has any other form of substantial control over the reporting company, not listed above.

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. 

You will need the following to file a BOI report:

• Company details (Legal name, EIN, address, etc.)
• Beneficial Owner details (Name, address, date of birth, valid ID)
• Company applicant details if company was formed after 1/1/24
  • The company applicant is the person primarily responsible for creating or forming the company

• Reporting companies created or registered to do business before January 1, 2024, will have until January 1, 2025 to file their initial BOI reports.
• Reporting companies created or registered on or after January 1, 2024, and before January 1, 2025, have 90 calendar days after receiving actual or public notice that their company’s creation or registration is effective to file their initial BOI reports.
• Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports.

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 a civil or criminal penalties, including 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 of an entity that fails to file a required BOI report may be held accountable for that failure. 

Staying up to date on legislation changes and new compliance requirements can be a burden for small business owners who need to be efficient with their time. Choosing our business to assist with filing your BOI report ensures efficiency, accuracy, and peace of mind. By leveraging our online platform, you save time and avoid the complexities and potential errors of manual filing. We also offer personalized support, answering any questions you may have in the process. Trust us to handle your compliance needs so you can focus on growing your business with confidence.