In 2021, Congress passed the Corporate Transparency Act (CTA), which is intended to detect, prevent, and punish money laundering, terrorism, and other misconduct and illicit activities through business entities. The CTA took effect on January 1, 2024, and now requires that most entities formed in or registered to do business in the U.S. file a report listing names and other personal information of the entity’s 25% owners and individuals with substantial control, which the CTA calls collectively the “beneficial owners.”

Key Deadlines

Generally, initial reports will be required within 30 days of formation or registration of the entity. However, there is a reprieve in 2024: for entities formed or registered prior to Jan. 1, 2024, you have until Jan. 1, 2025. For entities formed or registered in 2024, you have 90 days.

If you are a “reporting company” (an entity with no exemption) then this law applies to you. The law requires that you file the following with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN):

An initial report, within the applicable deadline described above.
An updated report, within 30 days of any changed information.
A corrected report, as soon as an error is discovered in a previously filed initial report or updated report.
There is no annual report requirement, so if the information on the initial report never changes, theoretically you don’t have to file an updated report ever. However, we expect that most reporting companies will occasionally need to file an updated report.

What does FinCEN do with all these reports?

FinCEN is creating a database that can be accessed by law enforcement under certain circumstances and by financial institutions for certain anti-money-laundering purposes. However, any entity that is not law enforcement will not be able to access it without the consent of the reporting company.

Why do we need to report?

Noncompliance can be costly. Civil penalties of up to $500 per day and criminal penalties of up to 2 years in prison and up to $10,000 can be issued for willful noncompliance. The reporting company is generally the one on the hook for noncompliance, but senior officers of the reporting company can be held personally liable as well. Noncompliance includes failure to file a report or updated report as well as willfully providing false information on a report.

Bottom line: While this may feel like an arduous, painful process, companies need to ensure that they comply.

Where do we start?

The most cost-effective way for a company to file the report is to handle the process of data collection and the bulk of the report preparation itself. Filing the report directly with FinCEN is free. However, there are many service providers that provide secure platforms to collect and retain the information and to some degree automatically populate the reports, generally for less than $100 per report, irrespective of the number of beneficial owners.

Entities that serve as registered agent tend to provide these services, including the following:[1]

– Capitol Services
– CSC Global
– CT Corporation

FinCEN’s own materials are really helpful. Here are some links to the FinCEN website https://www.fincen.gov/boi
and BOI Guide https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
. In addition, what follows is our step-by-step guide to completing and filing the BOI report.

STEP-BY-STEP GUIDE TO COMPLETING & FILING THE BOI REPORT

Step 1: Determine if you are a reporting company or if an exemption applies.

You are required to report to FinCEN if you are a corporation, a limited liability company (LLC), or were otherwise created in the U.S. by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe, or a foreign company registered to do business in any U.S. or tribal jurisdiction.

Are you an entity formed in the U.S.? Or a foreign entity registered to do business in the U.S.? Then, yes, you are almost certainly[2] required to report unless you qualify for an exemption. If you are a U.S. business then generally the only time you won’t be a reporting company is if you are a sole proprietorship or a general partnership—meaning you never filed any paperwork to “form” your entity.

Remember that this analysis needs to be made for each entity so if an operating entity has multiple subsidiaries or parent companies, the analysis must be done for each of them.

The BOI Small Entity Compliance Guide has detailed checklists for exemptions for reporting companies—23 of them. The exemptions generally fall into the categories of highly regulated entities like financial institutions and publicly traded companies, tax-exempt nonprofits, certain large operating companies, and certain inactive entities. Don’t just guess whether you’re eligible for an exemption based on the title alone;work with the checklist available in the BOI Guide. Chart 2 includes technical definitions for each exemption. https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

This is a good time to work with your attorneys—let them know which exemption may apply and have them verify your analysis before deciding not to file because of an exemption.

Step 2: Determine beneficial owners.

The technical definition of a “beneficial owner” is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company. According to FinCEN, an individual exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer;(2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;(3) the individual is an important decision-maker;or (4) the individual has any other form of substantial control over the reporting company.

What does this mean in practice? Beneficial owners will likely include:

– Anyone with a “Chief ____ Officer”/C-level job title
– President, Treasurer, or Secretary of the entity
– Manager of an LLC;General Partner of a limited partnership. If, e.g., the manager of an LLC is itself an entity, then you may have to determine if there is a particular individual at the management LLC that has the requisite substantial control
– Certain members of the board of directors. If the board has 3 members or fewer, we recommend reporting all individuals. For larger boards, determine whether any particular director has substantial control using the checklist.
– Anyone with 25% ownership. Since the formal calculation (which you can find in the BOI Guide) is fairly technical, we recommend running the formal calculation with anyone over 15% to determine if they hit 25% using the formal calculation.
– Anyone with a special right like a functional veto over fundamental changes.
Reference the BOI Guide for more information on determining substantial control, ownership interest, beneficial owners, and exemptions.

Required beneficial owner information includes full legal name, date of birth, complete residential address, unique identifying number, issuing jurisdiction, and image from a non-expired U.S. passport, state driver’s license, identification document issued by a state, tribe, or local government, or (only if none of those exist) a foreign passport.

Step 3: Determine company applicants.

For reporting companies created on or after January 1, 2024, one or two company applicants must be identified and reported. A company applicant is an individual who is “the direct filer” or an individual who “directs or controls the filing action.”

Like beneficial owners, the information required for company applicants is full legal name, date of birth, complete address, unique identifying number issuing jurisdiction, and image from a non-expired U.S. passport, state driver’s license, identification document issued by a state, tribe, or local government, or (only if none of those exist) foreign passport.

Companies created prior to January 1, 2024, do not have to report Company Applicants. Note that unlike all other information on the BOI Report, the company applicant information does not need to be updated even if it later changes.

Step 4: Determine how you will file.

Your choices here are (1) file yourself or (2) use a service company to file.

If you are filing yourself, you will choose whether to use the fillable PDF, which you will then submit online, or whether you will use FinCEN’s web-based form. We highly recommend using the fillable PDF, because as of the time of this writing, the web-based form does not let you save progress and come back to finish later.

Both methods are located at https://boiefiling.fincen.gov
.

If you choose to use a service company to file, we recommend accessing the service company’s filing platform and following the indicated information. Using service companies to file may be beneficial when you have a large number of beneficial owners because they provide a secure platform to collect and store the personal information of each beneficial owner.

Step 5: Gather information and fi…