REPORTING OF BENEFICIAL OWNERSHIP INFORMATION UNDER THE CORPORATE TRANSPARENCY ACT

If you are a member of a business entity that was formed prior to January 1, 2024, you may have an obligation to report personal identifying information of the entity’s current beneficial owners.   This obligation arises out of a new federal law called the Corporate Transparency Act (“CTA”).  The CTA was enacted in 2021 to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market.

Who must report?

The CTA has broad application to all non-exempt entities including corporations, limited liability companies (even single-member LLCs), partnerships, and even estates or trusts owning current business interests.  The CTA contains a list of 23 exemptions from the beneficial owner reporting requirements, including publicly traded companies; banks; credit unions; brokers or dealers in securities; investment companies or investment advisers; venture capital fund advisers; insurance companies; state-licensed insurance producers; accounting firms; tax-exempt entities, inactive entities, qualifying subsidiaries, and large operating companies. 

What is a beneficial owner? 

According to the CTA, an individual qualifies as a beneficial owner if they directly or indirectly have a “significant ownership stake” in a company. This is defined as any person who has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company's shares, or has a comparable level of control over the company's equity.

How and where to report?

Beneficial ownership information must be reported to the Financial Crimes Enforcement Network of the  Department of the Treasury, known as FinCEN, via their online portal: https://www.fincen.gov/boi.  Instructions can be found at: https://www.fincen.gov/boi-faqs.  The information will be maintained in a secure database and  made available only to federal agencies, state and local agencies, and law enforcement.

What must be reported?

Each non-exempt entity is required to report its full name, any “doing business as” name (DBA), current address, state of incorporation, and its Taxpayer Identification Number (TIN).  Each Beneficial owner of each non-exempt entity is required to report personally identifying information, including the owners’ full name, date of birth, current address, unique identifying number from an official document such as a passport or state ID, and an image of the official government document.  Any person that is required to report beneficial owner information may obtain their own FinCEN Identifier number rather than provide their personal information to the individual tasked by the non-exempt entity to make the required disclosures.  The FinCEN Identifier can then be used to  streamline the process of reporting, eliminating the need for multiple re-submittals of the sensitive information  and documentation for each business entity. It is highly advised that every Reporting Company and Beneficial  Owner obtain a FinCEN Identifier Number for ease and to further protect sensitive personal information.

When to update your reporting?

Any and all changes in Reporting Company information, including changes in exemption status or Beneficial Ownership, must be reported to FinCEN within 30 days of the change.  Examples of a change requiring an update to the BOI report include registering a new DBA, any change in beneficial owners or a sale that changes who meets the threshold of 25% interest in a non-exempt entity, changes to any Beneficial Owner’s personal information such as name or address, or death of a Beneficial Owner.  This list is not exclusive so if you might have a question as to whether you need to update your reporting, please reach out to an attorney for guidance. 

Are there penalties for not reporting? 

The CTA provides for civil and criminal penalties for any person who fails to report as required.    Any person who fails to report as required may be liable for a civil penalty of $500 (adjusted annually for inflation, $591 as of  April 18, 2024) for each day a violation continues, with no limit on penalties imposed, and/or may be fined additionally up to $10,000 and imprisoned for up to two years, for a criminal violation.

Thus, the CTA places new obligations on certain business owners, including almost all small business owners, and the penalties for failure to comply with these new obligations can be steep.  Please contact your Wood, Kull, Herschfus, Obee & Kull Attorney if you have any additional questions regarding your company’s reporting obligations or to discuss the process of compliance.  Standard Billing Rates will apply.