The Corporate Transparency Act: What is it and who will it affect? 

By Stephanie Barclay, JD

On January 1, 2024, a new reporting requirement went into effect, pursuant to the Corporate Transparency Act (CTA) that requires millions of small businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).  Every small business entity needs to know about this new reporting requirement as non-compliance can result in severe penalties. 

Every corporation, or LLC, or other entity created by the filing of a document with a Secretary of State (or similar office under the law of a state or Indian tribe) is required to file a BOI report unless it qualifies for an exemption. 

There are 23 categories of entities that are exempt. Most exemptions are for entities that are already subject to substantial federal or state regulation.  Exempt entities include, for example, publicly traded companies and other entities that file reports with the SEC, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, and accounting firms. There is also an exemption for a “large operating company” which is an entity that (1) employs more than 20 full-time employees in the United States, (2) has an operating presence at a physical office within the United States, and (3) has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales. If you are unsure whether the CTA applies to your company, please consult with a business attorney.

The report must set forth the reporting company’s (1) full legal name, (2) any trade or “doing business as” names, (3) complete current street address of the principal place of business, (4) jurisdiction of formation, and (5) taxpayer identification number.

The report must also include the following information pertaining to the company’s beneficial owner(s): (1) full legal name, (2) date of birth, (3) complete current residential street address (except in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, who has to provide the street address of the business), (4) unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license, or (iv) if the individual has none of those, a foreign passport, and (5) an image of the document from which the unique identifying number was obtained.

A beneficial owner is an individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25 percent of its ownership interests.

The initial BOI report and all updates and corrections are filed electronically with FinCEN. There is no fee for filing the reports. It is recommended that you consult with a business attorney for assistance with the filing. 

A company formed before January 1, 2024, must file its initial BOI report by January 1, 2025.

A company formed on or after January 1, 2024 and before January 1, 2025 must file a report within 90 calendar days of the date on which it receives actual or public notice that its creation has become effective.

A domestic reporting company created on or after January 1, 2025 must file a report within 30 calendar days of the date on which it receives actual or public notice that its creation has become effective.

The reporting requirements in the Corporate Transparency Act are intended to prevent businesses from committing bad acts like tax fraud, money laundering and financing terrorism while hiding their identities behind a corporate structure.  According to Congress, collecting corporate beneficial ownership interests is necessary to protect national interests and counter illegal acts.  

Failure to report can result in severe penalties (for willful non-compliance) including civil fines of up to $500 per day up to $10,000 and criminal penalties of up to $10,000 and up to two years in prison.  

Carmel & Naccasha Partner Stephanie Barclay, practices in the areas of business and real estate transactions and estate planning. If you have any questions about this article, please contact attorney Stephanie Barclay (sbarclayt@carnaclaw.com) or (805) 546-8785. . 

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