Corporate Transparency Act: Beneficial Ownership Information Filing Requirements
The Corporate Transparency Act (“CTA”), which went into effect on January 1, 2024, imposes stringent federal reporting requirements on almost all small businesses in the United States. It was passed by Congress in 2021 to enhance transparency in entity structures and to help the federal government combat money laundering, foreign interference, fraud, and other illegal activities. The CTA and related regulations promulgated by the U.S. Department of the Treasury require nearly all small businesses in the U.S. to file reports with the Financial Crimes Enforcement Network (“FinCEN”).
Here, we outline the FinCen beneficial ownership filing requirements and provide some information and resources for making a timely filing.
Who is required to make FinCEN filings?
Virtually all business entities formed at any time (including before January 1, 2024) in any U.S. state (or foreign companies that are registered to do business in a U.S. state) are subject to the CTA and are required to file and update reports with FinCEN. Very few small businesses are exempt from filing requirements.
The CTA does exempt certain entities from filing obligations, but these are mainly organizations that are already subject to enhanced financial scrutiny, such as broker-dealers, insurance agencies, banks, large operating entities, investment agencies, or tax exempt entities. (For a full list of the exempt entities, see 31 CFR 1010.380(C)(2).)
In all likelihood, if you run or operate a for-profit startup company in the U.S., you must comply with new filing obligations. No business should assume (or hope) that it is exempt from CTA reporting requirements, as the overwhelming majority of small businesses are required to report.
What, exactly, are companies required to file?
All applicable small businesses are required to file and update information about both the company itself and each of the company’s “beneficial owners.” (More about beneficial owners below.) In addition, companies formed after January 1, 2024, are required to provide information about the person(s) who filed the company’s formation documents with the applicable secretary of state.
Generally, a beneficial owner is any individual who, directly or indirectly, either (1) owns 25% or more of the interests in the Reporting Company; or (2) exercises “substantial control” over the Reporting Company (this includes managers of an LLC, senior officers, members of a board of directors, etc., whether or not such individuals are also owners).
Examples of information companies are required to provide as part of the FinCen filing process include full legal name of the company, all trade names and DBAs, street address of the principal place of business, and EIN or other tax identification number. Additionally, companies must provide the following information about all beneficial owners of the company: full legal name, date of birth, residential address (or, if the owner is an entity, its primary business address), for individuals, an ID number from a non-expired passport, driver’s license, or state identification (and a copy of the passport/driver’s license/state ID), and, for entity owners, an EIN or other identification number.
To streamline the filing process and protect owner’s privacy, beneficial owners can separately register for a FinCEN Identifier. Owners may then provide the FinCen Identifier to companies in lieu of submitting all of the above information for each company owner. Any individual or entity is required to promptly update their FinCen Identifier if any provided information changes, such as if they move to a new address or receive an updated driver's license number. The use of FinCEN Identifiers can help streamline compliance and lessen the burden on your company’s reporting obligations. As such, Valle Legal strongly recommends you request all beneficial owners obtain a FinCen Identifier.
When do companies need to file?
There are strict reporting deadlines that each Company must comply with, as follows:
For companies formed before January 1, 2024, the company must file its initial report with FinCEN before January 1, 2025.
For companies formed on or after January 1, 2024, but before January 1, 2025, the company must file its initial report with FinCEN within ninety (90) days following the company’s formation.
For Reporting Companies formed on or after January 1, 2025, the company must file its initial report with FinCEN within thirty (30) days following the company’s formation.
Additionally, you must update your report if any information you provided in the report changes. These updated reports must be filed within thirty (30) days of the applicable change. Changes that must be reported include:
Changes to the company’s information (e.g., name, DBA, address, etc.).
Changes of the identities of the beneficial owners (e.g., a new stockholder becomes a 25% owner, a previous beneficial owner is no longer classified as such, or you appoint a new member to the company’s board of directors or managers).
Changes to any of the information about a beneficial owner that was previously submitted (e.g., name changes, changes of residential address, driver’s license, etc.). Note, however, that if your company relied on a beneficial owner’s FinCEN Identifier when providing information about that owner, it is the owner’s responsibility (not the company’s responsibility) to timely update the owner’s information with FinCen.
What are the penalties for not filing on time?
The willful failure by a company, its senior officers, and/or a beneficial owner to comply with the CTA’s requirements and timely provide accurate information to FinCEN can result in both civil penalties (a fine of $500 per day that a violation continues, up to a maximum of $10,000) and criminal prosecution (fine of up to $10,000 and/or imprisonment of up to 2 years).
It is therefore very important that all small businesses take these reporting requirements seriously and ensure that they are and remain in compliance.
How do companies make the FinCen filing?
Companies may prepare and submit a FinCEN filing via the beneficial ownership information e-filing website: https://boiefiling.fincen.gov. The platform is relatively straightforward and, provided you have gathered all necessary information for the filing, can be an efficient process.
How can Valle Legal, PLLC, assist with these filings?
Please note that Valle Legal cannot prepare or file FinCen reports on behalf of clients. Filing is the exclusive responsibility of a company. However, upon specific request, Valle Legal may be able to assist in determining whether any exceptions to the CTA reporting requirements apply to your company, and if necessary, help identify the company’s beneficial owners.
Additional Resources
If you have any questions or concerns about the CTA, FinCen, or the beneficial ownership reporting requirements, please review the following official resources:
FinCEN’s general webpage for the CTA – https://www.fincen.gov/boi/small-business-resources
FinCEN’s Small Entity Compliance Guide – https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf
FAQ prepared by FinCEN – https://www.fincen.gov/boi-faqs
Final Note: Fraudulent Activity Related to FinCen Filings
FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to CTA reporting requirements. The fraudulent correspondence may be titled "Important Compliance Notice" and asks the recipient to click on a URL or to scan a QR code. Do not respond to these message, click these links, or open the QR code! Those emails and letters are fraudulent. They are not prepared or sent by FinCen. FinCEN does not send unsolicited requests.
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