By now, sales representatives operating through their business entities have heard of the Corporate Transparency Act and its compliance requirements. For many business owners, the deadlines for submitting the required reports under the Act are fast approaching. So, what is the Corporate Transparency Act and how does it impact the sales representatives operating through their own corporations, limited liability companies and other similar business organizations? This article will examine the Corporate Transparency Act and its compliance requirements and timelines.
The Corporate Transparency Act
The Corporate Transparency Act (“CTA”), effective as of January 1, 2024, provides law enforcement with ownership information for the purpose of detecting, preventing and punishing terrorism, money laundering, and other misconduct through business entities. Certain businesses are required to report information about their beneficial owners, meaning the individuals who own or control the company. Under the CTA, information is filed with the Financial Crimes Enforcement Network (“FinCEN”) through an online report. This information is not publicly available, but FinCEN is authorized to disclose the information:
- to U.S. federal law enforcement agencies,
- with court approval, to certain other enforcement agencies,
- to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and
- with consent of the reporting company, to financial institutions and their regulators.
While the information provided in the report is confidential and not publicly accessible, a business owner must ensure that any records maintained by the company are handled securely to prevent unauthorized access to confidential information.
What Entities Are Affected by the Corporate Transparency Act?
The first step towards compliance with the CTA is to determine whether an entity is a “reporting company.” A reporting company is any entity that 1) falls into one of the two categories of covered entities and 2) does not qualify for an exemption.
The CTA covers two general categories of businesses or reporting companies. The first is a domestic (United States) reporting company, including corporations, limited liability companies (LLCs), and other similar entities that are formed by the filing of a document with a secretary of state or another similar office. The second is a foreign (non-United States) reporting company, including companies formed outside of the United States and registered to do business in any U.S. state through the filing of a document with a secretary of state or another similar office.
With very limited exceptions, if an entity is covered under one of the two categories, it is required to file a Beneficial Ownership Interest Report (BOIR).
Who Is a Beneficial Owner?
Once an entity determines that it is required to file a BOIR, it must determine which individuals qualify as Beneficial Owners. A Beneficial Owner is any individual who, directly or indirectly 1) exercises substantial control over a reporting company or 2) owns or controls at least 25 percent of the ownership interests of a reporting company.
An individual who exercises substantial control over a reporting company possesses a strong influence over the entity either by making important decisions or by other forms of control. There are four questions that entities can ask themselves to help determine which individuals classify as Beneficial Owners:
- Is the individual a senior officer (i.e. CEO, COO, President etc.)?
- Does the individual have authority to appoint or remove certain officers or a majority of directors or managers of the reporting company?
- Is the individual an important decision maker?
- Does the individual have any other form of substantial control over the reporting company?
The determination of which individuals control at least 25 percent of the ownership interests is relatively straightforward. Almost all entities can locate the shares of equity, stock, or other methods to establish ownership interests to make a simple calculation of how much of the entity is owned by each individual.
After determining which individuals qualify as Beneficial Owners, entities should be prepared to include their information, including name, current address, and a form of identification on the BOIR.
Reporting the Company Applicant
The CTA defines a Company Applicant as the individual or individuals who prepared or file the business organizational documents to legally create the business entity, and an individual who is primarily responsible for directing or controlling the relevant document by another. The BOIR includes a section for the Company Applicant’s information. However, not all reporting companies are required to report their Company Applicants. The following requirements apply depending on the formation or registration date of the reporting company:
- Reporting company is required to report its company applicants if it is either a:
- Domestic (U.S.) reporting company created on or after January 1, 2024, or
- Foreign (non-U.S.) reporting company first registered to do business in the United States on or after January 1, 2024.
- Reporting company is not required to report its company applicants if it is either a:
- Domestic (U.S.) reporting company created before January 1, 2024, or
- Foreign (non-U.S.) reporting company first registered to do business in the United States before January 1, 2024.
If your entity is required to report a company applicant because it was created on or after January 1, 2024, there will be at least one company applicant and no more than two.
What Information Has to Be Reported?
The BOIR requires information about the reporting company which includes 1) legal business name and alternate DBA name (if applicable), 2) Tax ID, 3) jurisdiction of entity formation or first registration, and 4) current United States address. Additionally, the BOIR requires information about the Company Applicant and Beneficial Owners. If the Company Applicant is also a Beneficial Owner, that individual will need to be included in both sections of the report.
When Do You Have to Report?
The CTA provides various deadlines depending on the date of formation or registration of an entity.
| When was the entity formed/registered? | Filing Deadline |
| Existing reporting companies formed or registered before January 1, 2024 | January 1, 2025 |
| New reporting companies formed or registered in 2024 | 90 calendar days after notice that their original filing was effective (formation date) |
| New reporting companies to be formed or registered in 2025, and after. | 30 calendar days after notice that their original filing was effective (formation date) |
How Do You File the Report?
Reporting companies file the initial BOIR electronically through FinCEN’s filing system, located at https://boiefiling.fincen.gov/fileboir. Once at the website, the reporting company should select to “File Online BOIR.” Entities filing the initial report must request to receive a FinCEN ID. Once the filing is submitted, the entity will receive its FinCEN ID to be kept in its records.
Once you select the option to file the online report, follow the instructions to file the initial report, request a FinCEN ID, provide information about your entity, company applicant(s), beneficial owner(s), and carefully review your information to ensure that it is correct.
After filing the initial report, business owners must ensure that they maintain accurate records with FinCEN. If there are changes to the company (e.g., a new beneficial owner, a change in ownership percentage, or a change in address), the report must be updated and resubmitted to FinCEN within 30 days. Compliance is critical, so business owners should maintain accurate records to make reporting the changes as easy as possible. Penalties for noncompliance with the CTA are steep, with civil fines up to $500 per day for as long as a reporting violation continues, as well as criminal penalties including imprisonment of up to two years and criminal fines up to $10,000.
Takeaways
Given the legal and financial implications of non-compliance, it is wise to consult with legal counsel, compliance professionals, or corporate service providers to ensure full compliance with the CTA. Even though the online filing portal was created with accessibility in mind, forming a relationship with a professional who can assist you with reporting compliance can make it easier on a business owner to keep up with any changes to the CTA regulations and keep accurate records filed with FinCEN. These professionals can also help prepare for, and avoid, penalties for noncompliance and assist in responding promptly to inquiries from FinCEN or other regulatory agencies.
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