Corporate Transparency Act Q&A

October 20, 2023  |  By

As a business owner, you may have heard about the Corporate Transparency Act and the significant burdens it will place on all business owners. But what exactly are these new requirements? Read on to learn more:

What is the Corporate Transparency Act?

The Corporate Transparency Act is a law passed by Congress in 2021 that is primarily concerned with preventing money laundering. Specifically, the Act is designed to prevent bad actors from concealing their ownership of corporations, LLCs, partnerships, and similar entities in the U.S. in order to engage in money laundering, financing of terrorism, tax fraud, and other illegal activities.  The Corporate Transparency Act requires most businesses to file a Beneficial Ownership Information report (“BOI Report”).

Which businesses does the Corporate Transparency Act cover?

All businesses are subject to the Corporate Transparency Act requirements, unless specifically listed as an exempt business.

Which businesses are exempt from reporting under the Corporate Transparency Act?

There are quite a few categories of exempt businesses. You can find a list below. You’ll notice that entities that must register with the SEC or other public authorities are generally exempt from filing a Beneficial Ownership Information Report. This is because these types of exempt entities are already required to file beneficial ownership information with the applicable public authority already.

  1. Publicly traded companies (required to file reports by the SEC)
  2. Government owned companies
  3. Banks
  4. Credit unions
  5. Bank holding companies
  6. Broker/dealers registered under Section 15 of the Securities and Exchange Act
  7. Exchange or Clearing Agencies (registered with the SEC)
  8. Investment Companies or Investment Advisors (registered under the Investment Company Act or SEC)
  9. Insurance Companies
  10. Commodity Exchange Act registered entities, any entity that: (A) is a registered entity as defined in Sec. 1a of the Commodity Exchange Act, or (B) is: (1) a futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor, each as defined in Sec. 1a of the Commodity Exchange Act, or a retail foreign exchange dealer as described in Sec. 2(c)(2)(B) of the Commodity Exchange Act and (2) registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.
  11. Public Accounting Firms
  12. Public Utilities
  13. Churches, charities, non-profits, or similar organizations
  14. Financial market utilities
  15. Insurance producers
  16. Pooled investment vehicles
  17. Any business entity that meets the following criteria:
    • Employs more than 20 people;
    • Files income tax returns with gross receipts or sale of $5,000,000 or more; and
    • Has an operating presence at a physical office in the U.S.

What does the Corporate Transparency Act require businesses to do?

The Corporate Transparency Act requires new businesses to report certain information regarding the business, its beneficial owners, and company applicant(s). The Act also requires existing businesses to provide similar information regarding the business. Both new and existing businesses must update the information within thirty (30) days of a change.

What is a beneficial owner?

A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the company or owns or controls, directly or indirectly, 25% or more of the company’s ownership.

What is a company applicant?

A company applicant is an individual who directly files the document that creates the company and/or is primarily responsible for directing or controlling the filing (if different). This individual is called the incorporator or organizer of the company in most states.

When do existing businesses have to start reporting and what do they have to report?

Companies formed before January 1, 2024 must file a BOI Report no later than January 1, 2025. The application to file a BOI Report will be available on or after January 1, 2024.

What will new businesses (formed after January 1, 2024) have to report, and when?

Businesses formed on or after January 1, 2024 and on or before December 31, 2024 must file a BOI Report within ninety (90) days of formation. New businesses filing on or after January 1, 2025 must file within thirty (30) days.

Do BOI Reports have to be updated?

Yes, all companies must update the BOI Report to reflect current ownership within 30 days of a change, or 30 days of becoming aware that the report is inaccurate, if different.

Are there any filing fees?

There are no filing fees associated with filing a BOI Report.

Who will have access to the reports?

The general public will not have access to the BOI Reports, and the reports will not be subject to requests under the Freedom of Information Act. The following government agencies and third-parties will, however, have access to the BOI Report information:

  • federal agencies engaged in national security, intelligence, and civil and criminal law enforcement, such as the FBI and CIA
  • the Department of the Treasury in connection with its official duties, including tax administration
  • state and local law enforcement agencies in connection with criminal or civil investigations
  • financial institutions in conjunction with anti-money laundering compliance activities

What is included in the report?

The BOI Report includes the following information for the Entity:

  1. the full legal name of the entity
  2. any trade or d/b/a name
  3. the address of the entity
  4. the jurisdiction of formation of the entity
  5. the federal taxpayer ID number

It also includes the following information for each Beneficial Owner:

  1. name
  2. date of birth
  3. home address
  4. a unique identifying number and issuing jurisdiction (e.g, US passport or driver’s license
  5. an image of the document that contains the identifying number (If an individual does not have a unique identifying number, the beneficial owner can obtain a FinCEN identifier that can be used.)

Are there any non-compliance penalties?

Yes, failure to comply with the Corporate Transparency Act, including failure to file reports, or false or fraudulent reports may result in civil fines of $500/day that the report remains inaccurate. For serious violations, violators may also be subject to criminal penalties of $10,000 or 2 years in jail.

The Federal Government is not the only one wanting more transparency regarding the owners of companies within its jurisdictions. Possible state regulation is also on the horizon, and multiple countries outside the U.S. are proposing similar laws as well. Vela Wood has lawyers who can advise with respect to these compliance issues. Stay tuned for continued content as these corporate transparency laws develop.

Posted in: General Business

About the Author(s)

Candace Groth

Candace Groth is a senior attorney at Vela Wood. She focuses on mergers & acquisitions and complex LLC matters.

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