Corporate Transparency Reporting Rules

As of January 1, 2024, the U.S. government will mandate most businesses to disclose additional details about individuals who exert direct or indirect control over the company. This involves revealing information about owners, officers, and key operators. This change stems from the Corporate Transparency Act, which Congress passed in 2021 with the objective of curbing money laundering activities facilitated by opaque business entities or shell companies. The new reporting obligations will apply to all companies formed within or registered to operate in the United States, under the regulatory purview of the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.

After the initial filing, reporting companies have 30 days to file an updated report noting any change to information previously reported. In addition, reporting companies must correct inaccurate information in previously filed reports within 30 days after the date they become aware of the error.

Note that reports filed with FinCEN aren’t available to the general public. However, certain government agencies will have access to the information, including those involved in national security, intelligence and law enforcement, as well as the IRS and U.S. Treasury Department.

What are the penalties for failing to comply with the new reporting rules? An omission or fraudulent report could result in civil fines of $500 a day for as long as the report is missing or remains inaccurate. Failure to comply may also trigger a criminal penalty of a $10,000 fine or even a two-year jail term.

Taking the Next Steps

What should your company do now to ensure compliance? Evaluate your current situation. If you determine that your business must meet these obligations, collect the required information, update and refine internal policies for accurately reporting the data, and establish a system for monitoring the reporting processes. If you have questions about your company’s reporting requirements or need any assistance with BOI filing, we recommend you contact your attorney or legal advisor for help.

Investigating and Confirming Beneficial Ownership

Companies reporting either domestically or overseas are mandated to disclose their beneficial owners to FinCEN. Beneficial ownership is characterized by someone who has substantial influence over the company or owns a minimum of 25% of the company’s interests – this includes equity, stocks, voting rights, capital, profit interest, and so forth. Substantial control may include senior officers, individuals with the power to hire or fire officers or directors, key decision-makers for business, finance, or structure, and individuals with other unique or new forms of substantial control over the reporting company. This generally pertains to individuals related to the company’s ownership interests, but indirect control can also lead to being classified as a beneficial owner. 

However, not all individuals related to the company are deemed as beneficial owners under the CTA. These may include nominees, intermediaries, custodians, or agents acting on behalf of the beneficial owner, employees with control over the entity’s financial benefits due to their employment status (unless they’re senior officers), individuals whose only interest in the reporting company is through inheritance, creditors (unless they have substantial control or 25% ownership), or minor children. For minors, parent or legal guardian information must be reported..

Understanding Other CTA Reporting Obligations

The CTA has a broad range of reporting requirements. Reports to FinCEN must include the following details: the entity’s legal name or any DBA name, address, jurisdiction of formation, Taxpayer Identification Number, and the name, address, DOB, unique identifying number of each beneficial owner, and an image of the document containing the identifying number.

The deadline for the initial BOI reports depends on the company’s creation or registration date. Companies formed or registered before 1st Jan 2024 have until 1st Jan 2025 to file their initial reports. Companies formed or registered in 2024 have 90 days from receiving an official or public notice from the secretary of state. Companies formed or registered after 1st Jan 2025 have 30 days to file their initial reports.

After the initial filing, any changes or inaccuracies in the previously reported information must be updated or corrected within 30 days. Reports aren’t public records but can be accessed by certain government bodies like national security, intelligence, law enforcement, the IRS, and the U.S. Treasury Department.

Penalties for non-compliance can be severe, with omissions or fraudulent reporting potentially leading to daily fines of $500 for as long as the report is incorrect or missing. Non-compliance could also lead to a criminal fine of $10,000 or a two-year imprisonment.

Charting the Course Forward

To ensure compliance, companies need to assess their current standing. If you find that your business has to fulfill these obligations, gather the necessary information, update internal policies for accurate reporting, and develop a system for overseeing the reporting processes. For any queries or assistance our team of professionals is ready to assist.