This blog post does not constitute legal advice. To understand how the recent legislation impacts your small business, it is advisable to seek guidance from a legal professional. The information provided here is general and may not be applicable to your specific circumstances.
A relatively unnoticed yet already active law is the Corporate Transparency Act (CTA), which applies to small businesses, particularly those structured as Limited Liability Companies (LLCs) or other entities.
Enacted in 2021, the CTA was designed by Congress to address issues such as money laundering and terrorist financing. Due to the lack of requirements in many states for business owners to disclose their personal information, the government faced challenges in accessing this crucial data. With the CTA now in effect as of January 1st of this year, small business owners operating through entities are obligated to report three pieces of Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.
Reporting Company Information
The initial category of Beneficial Ownership Information (BOI) is the reporting company information. A “reporting company” encompasses any business, whether domestic or foreign, established by filing documentation with the secretary of state (or an equivalent State office) or an Indian tribe. Such reporting companies are required to disclose the following details to FinCEN:
- The reporting company’s name, along with any trade names or Doing Business As (DBA) names, if applicable.
- The physical address of the business.
- The jurisdiction under which the company is formed.
- A “unique business number,” which can include the company’s Employer Identification Number (EIN) from the IRS.
If you operate a business through an LLC (or another entity), it is highly probable that your entity falls under the category of a “reporting company,” unless specific exemptions for reporting companies apply.
Beneficial Ownership Information
The second category of information is Beneficial Ownership Information (BOI). A “beneficial owner” is an individual who possesses at least a 25% ownership stake in the company or someone who exercises “substantial control” over the company. The definition of “substantial control” is broad, encompassing individuals such as managers, directors, officers, or anyone else, including lenders with granted decision-making powers for the company. Companies are mandated to submit the following beneficial ownership information to FinCEN:
- The beneficial owner’s name.
- The beneficial owner’s date of birth.
- The beneficial owner’s residential or business street address.
- A “unique identifying number” from a passport or driver’s license, accompanied by an image.
If an individual owns more than 25% of an entity, they automatically qualify as a beneficial owner. Additionally, anyone exercising management control over the entity, irrespective of their ownership percentage, falls under the category of a beneficial owner according to the “substantial control” requirement.
Company Applicant Information
The third category of Beneficial Ownership Information (BOI) pertains to company applicant information. A company applicant is an individual responsible for submitting these reports to FinCEN. In the case of our business, Corporate Direct, which acts as a representative filing these reports on behalf of clients, we are considered a company applicant. However, FinCEN mandates this information only for entities formed after January 1, 2024.
FinCEN necessitates the following details for company applicant information:
- The company applicant’s name.
- The company applicant’s date of birth.
- A business or residential street address.
- A driver’s license or passport with a document number and an accompanying image.
If you establish an entity after January 1, 2024, you are required to report this company applicant information to FinCEN. At Corporate Direct, we can handle this reporting process on your behalf. It’s important to be cautious of companies that file articles with the state but neglect to submit their information to federal authorities, as this constitutes a violation of the law.
When to File
The deadline for filing these reports depends on the formation date of the reporting company:
- If your reporting company was established before January 1, 2024, you have a one-year window, until December 31, 2024, to report your information to FinCEN.
- For reporting companies formed between January 1, 2024, and December 31, 2024, the deadline is 90 days from the formation date to report information to FinCEN.
- If your reporting company was formed after January 1, 2025, you must report your information to FinCEN within 30 days of formation.
Additionally, when there are changes in ownership, a new mailing address, or the discovery of errors in a previous report, corrective reports must be filed within 30 days of such changes.
Penalties for failing to comply with the Corporate Transparency Act (CTA) are significant. Failure to report the required information can result in fines of up to $10,000 and/or a jail term of up to 2 years.
One notable concern with the CTA is the lack of widespread discussion about its implications, placing an additional burden on small business owners nationwide. Compounding the issue is the fact that certain registered agent services and even some attorneys advise clients not to be concerned about the CTA, potentially exposing them to avoidable liabilities due to the severe consequences of non-compliance.
At Corporate Direct, we take the CTA seriously and understand the potential risks. To help businesses steer clear of fines and penalties associated with the CTA, we offer assistance in preparing initial and amended reports, submitting them to FinCEN. For more information on the CTA and other business-related topics, visit CorporateDirect.com or explore Corporate Direct’s YouTube channel.
Ted Sutton, an attorney at Corporate Direct, Inc., collaborates with his father, Garrett Sutton, a Rich Dad Advisor renowned for his contributions to Robert Kiyosaki’s Rich Dad Series. Ted is also the author of “Five Tricks To Teach Your Kids About Money,” available for free download here.
Corporate Direct Bio.
Corporate Direct is a reputable entity formation and registered agent service with a proven track record of assisting numerous investors and business owners in safeguarding their assets. Notably, Corporate Direct specializes in preparing and submitting Beneficial Ownership Information (BOI) reports for its clients in accordance with the Corporate Transparency Act (CTA).
To delve deeper into the details of the CTA and explore additional insights on financial matters, you can visit CorporateDirect.com. Alternatively, you can find valuable information on Corporate Direct’s YouTube channel.
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