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Corporate Transparency Act

By: Atty. Marcus Collins

What is BOI reporting?

The Corporate Transparency Act (a federal act) has some new requirements for small businesses that are taking effect on January 1, 2024. The Act creates reporting obligations for small business owners regarding what it calls “beneficial ownership information.” However, it’s not just about “who owns” the entity–it’s about control and decision-making authority, as well.

The CTA requires certain small businesses to report information about who owns small businesses, and who has decision-making authority over the affairs of those businesses—in other words, those who have control over the business, whether direct or indirect. Most of our small business clients will be affected by this Act. They should plan to comply, too; the cost of non-compliance is pretty high.

Let’s better define which businesses are required to report. Generally, the CTA requires all businesses that are formed by filing documents with the Secretary of State to do BOI reporting (think LLC, corporation, etc.). We won’t go through them all, but there are several exemptions. (Make plans to attend our ABC to learn more. For most of our clients, these exemptions likely won’t apply.) Absent an exemption, any company with the following must report: (1) less than 20 full-time employees, (2) an operating presence in the U.S., and (3) $5,000,000 or less in gross receipts. It seems clear these reporting requirements are targeted at small businesses.

What information must be reported?

The personal information of any beneficial owner must be reported. (Information about company applicants must be reported for entities formed after January 1, 2024, as well. For more information on company applicants, visit the FinCEN resources cited below.)

A beneficial owner is anyone who exercises substantial control over the company or owns or controls at least 25 percent of the ownership interests. Someone has substantial control when he/she: (1) is a senior officer; (2) has authority to remove officers or a majority of directors; (3) is an important decision maker; or (4) has any other form of substantial control over the reporting company. The Financial Crimes Enforcement Network (FinCEN) has several resources available to companies to help figure out if they need to report, and if so, what information needs to be reported.

There are several pieces of information to report. For the company, that means: company/trade name; company address; company jurisdiction; and tax ID number. For company applicants and beneficial owners: their name; date of birth; physical address; ID number and jurisdiction; and a photo of their ID. The U.S. Government, law enforcement agencies, taxing authorities, and financial institutions will all be able to access this information.

Our firm’s new approach to help you stay in compliance

Beneficial Ownership Interest reporting is a new requirement under the law. Being a new requirement, if our clients want us to help them stay in compliance, this will involve services beyond what we’ve previously provided. The additional services will necessitate additional fees. We assume, as is the case with many aspects of the law, that there will be clients who prefer to handle this process on their own (without engaging our services to do it for them). However, for any clients interested in further engaging us to help them keep in compliance, we are here and ready to help.

In case you’re thinking of “ignoring the problem and hoping it goes away,” please rethink that. Noncompliance with the reporting requirements could lead to civil penalties of up to $500 per day for noncompliance, and a criminal maximum fee of $10,000 and/or up to two years in prison. For more information on the Corporate Transparency Act, BOI reporting, and what all of this means, make plans to attend this year’s Annual Business Conference on December 12th at 1:00p.m. Call the office to make your reservation.

For more information, see also:

Small Entity Compliance Guide, Beneficial Ownership Information Reporting Requirements:
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf.

And Beneficial Ownership Information Reporting Frequently Asked Questions: https://www.fincen.gov/sites/default/files/shared/BOI_FAQs_Q&A_FINAL.508C_Sept.18.pdf.


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Featured image taken from https://www.fincen.gov/boi.