Corporate Transparency Act Disclosure Requirements

Authored by Sara Mostafa

The following intends to summarize the requirements for compliance with the new beneficial ownership reporting requirement of the federal Corporate Transparency Act. Feel free to reach out to Lobb & Plewe, LLP with any questions.

In 2021, Congress passed the Corporate Transparency Act, which creates a new beneficial ownership information reporting requirement. With this new requirement, the U.S. government intends to deter miscreants from hiding or profiting from their illegal gains obtained through shell companies or other opaque ownership structures. The federal Financial Crimes Enforcement Network (FinCEN) launched the BOI E-Filing website for reporting beneficial ownership information (https://boiefiling.fincen.gov) on January 1, 2024.

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOI report. A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective. A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.

There are two types of reporting companies:

• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Certain entities are exempt from the reporting requirements under limited exemptions.

A “beneficial owner” is an individual who either directly or indirectly:

(1) exercises substantial control over the reporting company, or

(2) owns or controls at least 25% of the reporting company’s ownership interests.

A reporting company is obligated to report:

1. Its legal name;
2. Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
3. The current street address of its principal place of business if that address is in the United States, or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States;
4. Its jurisdiction of formation or registration; and
5. Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

A reporting company also must indicate whether it is filing an initial report, or a correction or an update of a prior report.

For each individual who is a beneficial owner, a reporting company must provide:

1. The individual’s name;
2. Date of birth;
3. Residential address; and
4. An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.

The reporting company must also report an image of the identification document used to obtain the identifying number in item 4.

For each individual who is a company applicant (i.e., the individual who directly files the document that creates or registers the reporting company and the individual who is primarily responsible for directing or controlling the filing), a reporting company (formed on or after January 1, 2024) is obligated to provide:

1. The individual’s name;
2. Date of birth;
3. Address; and
4. An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.

The reporting company must also report an image of the identification document used to obtain the identifying number in item 4.

If the company applicant works in corporate formation—for example, as an attorney—then the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s residential address.

The following are a few examples of changes that would require an updated beneficial ownership information report:

• A change to the reporting company’s legal name;
• A change to the reporting company’s management or ownership, including changes resulting from sales that alter who meets the ownership interest threshold of 25 percent; or
• Any change to a beneficial owner’s name, address, or unique identifying number previously provided to FinCEN.

If you correct a mistake or omission made in your beneficial ownership information reporting within 90 days of the deadline for the original report, you may avoid being penalized. However, you could face civil and/or criminal penalties if you disregard your beneficial ownership information reporting obligations.

A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years’ imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

Please follow the below link for an exhaustive Small Entity Compliance Guide published by FinCEN.

BOI Small Compliance Guide v1.1 (fincen.gov)

References:

Beneficial Ownership Information Reporting: Frequently Asked Questions, Financial Crimes Enforcement Network, https://www.fincen.gov/boi-faqs, (accessed January 10, 2024).