In the seemingly endless stream of regulations and paperwork, the Corporate Transparency Act has emerged as a new mandate affecting businesses, drawing mixed reactions, especially from small enterprises grappling with increased administrative obligations.

TL;DR Version.

• Who: The Corporate Transparency Act applies to essentially all private corporations and LLC's (see link below for complete list).
• What: This act requires reporting on information of owners, actual or "perceived" within 30 days of any changes (90-days for 2024).
• When: January 1, 2024 begins the 90-day reporting requirement and January 1, 2025 moves to a 30-day reporting requirement.
• Why: Despite intentions to combat financial crimes and enhance national security, many small business owners perceive this as another bureaucratic hurdle, adding to the existing administrative workload.
• How: Covered companies are required to divulge extensive details about beneficial owners, including personal information, exacerbating the strain on resources for compliance.

Reporting FAQs

Full Version:

Compliance Update: Beneficial Ownership Reporting Rolls Out in 2024

Starting January 1, 2024, companies will be required to report more information to the U.S. government about who owns and controls them. This rule was promulgated by Congress in 2021 through the Corporate Transparency Act, which was designed to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures”. In other words, this is an anti-money-laundering disclosure law like banks’ “Know Your Customer.”

It is not specific to any particular industry, but it does require greater disclosure to the federal government about the people in control of businesses than most have previously had to provide.

This requirement will apply to most of our client's entities, including single-owner LLCs, but there are some exceptions.

When Do You Need to Report?

Businesses formed before Jan. 1, 2024 have until January 1, 2025 to file their first beneficial ownership report with FinCEN (a “BOI Report”).

Going forward, new businesses being formed will have to file a BOI Report within 90 days after formation (if formed during 2024) and within 30 days after formation (if formed Jan. 1, 2025 or later).

What Needs to Be Reported?

Information about the people who are “beneficial owners” of the company, which includes any individual who owns or controls 25% of a company or has substantial control over the company. For the purposes of this Act, “Substantial Control” includes individuals who:

• are a Senior Officer,
• have appointment or removal authority of a Senior Officer,
• are deemed an important decision maker, or;
• any other individual with substantial control over major or impactful decisions of the business.

In other words, not just "actual" owners in the traditional sense are the subject to this reporting, it's any "behind the scenes" people that have authority or ability to make significant company decisions.

Going forward, companies will also have to include information about Company Applicants: the “Direct Filer,” the individual who directly filed the document that created the company, and any individual who was primarily responsible for directing or controlling the filing of the company. However, a company that was formed prior to January 1, 2024 will not need to include a Company Applicant on their BOI report.

For each individual, the BOI Report requires:

• their full legal name,
• date of birth,
• current address,
• and the number and an image of a passport, driver’s license, or other identification document issued by a state, local government, or tribe.

Additionally, information changes require an update to the report, including but not limiting to a new DBA, ownership changes, or death of a member. Once the change has occurred, the company has 30 days to update their report.

How to Report

FinCEN has created a form and will begin accepting reports on its FinCEN Reporting Site beginning on Jan. 1, 2024. There is no fee for any initial reporting or updates.

Consequences of Not Reporting

If a company does not report this information, they could face civil penalties of up to $500 each day the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of $10,000. Further, if any individual willfully causes a company not to file the required report or provides knowingly incomplete or false information, they may be subject to civil and/or criminal penalties.

Who Will Have Access to BOI Reports?

It will be stored in a secure, non-public database accessible to regulators at all levels, but not the general public. Specifically, FinCEN says that “Federal, State, local, and Tribal officials…[may] obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.” Financial institutions (like banks) can access the information with the consent of the subject company.

How to Get More Information

FinCEN has a great deal of information on their website. Here is a link to the Small Entity Compliance Guide.

Key Takeaways for Our Clients

We encourage all of our clients to plan to file a BOI Report in the later part of the required period (i.e. in late 2024 if your company already exists). While in some senses this feels like increased risk exposure, the information about beneficial owners will generally be required anyways. For example, the information in a license application will ultimately be fully public information.

As we have discussed with many clients, it is important to know who is on your cap table. We encourage you to be transparent with your partners and regulators about who controls an entity.

If you need help sorting out who your beneficial ownership owners are, give us a call. Some things may include due to poorly papered equity issuances, inheritance or other issues, or if your business does not have an operating agreement.

Contact the North Star Law Group Business Team for more information or help with your reporting.