The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, introduces a significant shift in disclosure requirements for certain U.S. and foreign legal entities. It aims to increase transparency in corporate ownership and does so through increased reporting requirements.
The Final Rule takes effect January 1, 2024, and mandates that required entities report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Below we’ll dive into the key aspects of this new regulation.
Which Entities Must Report BOI with FinCEN?
The majority of domestic and foreign entities are required to report beneficial ownership information with FinCEN, although there are some exemptions.
Domestic reporting companies include any corporation, LLC or similar entity that was created by filing with the secretary of state or similar office. Foreign reporting companies are any legal entity formed under the laws of a foreign country that is registered to do business in any state within the United States.
For a list of 23 entity types that are exempt from reporting, refer here to the Federal Register website.
Who is Considered a “Beneficial Owner”?
The term “beneficial owner” is central to the CTA. It includes individuals with substantial control over a reporting company or those owning or controlling at least 25% of its ownership interests.
The definition extends to senior officers, those with appointment or removal authority, and important decision-makers. FinCEN emphasizes direct and indirect substantial control and intends to capture various scenarios in which influence within an entity is exerted.
Exemptions include certain categories such as minors, intermediaries, employees (excluding senior officers), and those with only future interests through inheritance. Creditors of a reporting company also fall outside the scope. To ensure you’ve accurately complied with all reporting responsibilities, be sure to partner with an experienced business law attorney.
What is the Reporting Process and BOIR Form?
The reporting process involves providing detailed information about reporting companies, beneficial owners and company applicants. Initial BOI reports are due by January 1, 2025, for entities existing before January 1, 2024. Those formed or registered between January 1, 2024, and December 31, 2024, may benefit from a proposed 90-day extension.
FinCEN is in the process of developing the Beneficial Ownership Information Report (BOIR) Form to standardize reporting. An initial implementation will be available starting January 1, 2024, but the form will likely undergo revisions pending feedback from stakeholders. Additionally, FinCEN will require individuals and companies to request a FinCEN Identifier to streamline BOI report submissions. The Identifier is to enhance security and administrative efficiency.
Start Preparing for Change Today. Contact Us at Sirulnik Law for Help.
With these changes to the Corporate Transparency Act’s effective date of January 1, 2024, required reporting companies should begin proactively preparing. Early preparation allows entities to evaluate the impact on day-to-day operations and ensure compliance with the forthcoming requirements.
The CTA represents a significant shift toward greater transparency in corporate ownership. Navigating these changes requires a thorough understanding of reporting obligations and exemptions as well as the tools provided by FinCEN. Contact us at the Law Offices of Alex D. Sirulnik, P.A. to learn more about these and other corporate compliance matters. As the reporting landscape evolves, staying informed and proactive is key to successful compliance. Our attorneys are here to help.