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How Does The Corporate Transparency Act Impact My Business?

The United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) is required through the Corporate Transparency Act to prevent and protect the community from fraud and illicit activities involving U.S. companies. In 2021, the Corporate Transparency Act was enacted and took effect on January 1, 2024.

Background

The National Defense Authorization Act (NDAA) is a series of federal laws specifying the annual budget and expenditures of the United States Department of Defense.  In 2021, the NDAA incorporated substantial modifications to its Anti-Money Laundering management.  These modifications began with the enactment of the Anti-Money Laundering Act (AMLA). The purpose of AMLA is to promote regulatory reform and engagement and to update federal laws to prevent money laundering. Through the Corporate Transparency Act, the AMLA requires FinCEN to identify risks of fraud by those posing as business owners in shell companies and to collect information to provide feedback to Congress in an attempt to reduce the amount of illicit activities, including money laundering and financial terrorism in the United States. The Corporate Transparency Act was enacted to comply with required reporting instructions to Congress. Congress argues that the lack of state laws requiring beneficial owners to be identified has allowed for the exploitation of business entities to be used for conducting criminal activities. FinCEN is required to maintain a national registry of beneficial owners of business entities deemed to be reporting companies. A Beneficial Ownership Information (BOI) Report is required to be filed by all Beneficial Owners.

Who Is Required To Report?

Beneficial Owners of any U.S. reporting company are required to file a report. Beneficial Owner is defined by the Corporate Transparency Act as any individual who, “directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25 percent equity in the entity.”

There are listed individuals who are expressly excluded from this definition. These individuals include minors; any individual whose only interest in the reporting company is through inheritance; a person whose control derives strictly from employment in the company; an individual acting as an intermediary for the company, etc.

There are 23 entity types that are exempt from the reporting requirements set out by FinCEN. A complete list and compliance guide are available on the FinCEN Q&A website (https://www.fincen.gov/boi-faqs#B_2).

Third party entities or individuals, such as those listed as registered agents (i.e. accountants, attorneys, and any other intermediary companies) are not required to report as beneficial owners unless they exercise substantial control over a company or hold ownership interest in the company. Substantial control is defined in detail by FinCEN’s Small Entity Compliance Guide but generally applies to individuals of a company that hold decision making authority (such as CEO, CFO, general counsel) and individuals who hold authority to appoint or remove officers.

There are two types of reporting companies. A domestic reporting company is defined as a corporation, an LLC, and other entity created by the filing of a document to a state’s Secretary of State or any similar office in the United States. A foreign reporting company is defined as an entity formed under the law of another country that is registered to do business in the United States. Further clarifications to these definitions are sure to come.  

What Is Included In The Report To FinCEN?

 A qualified reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport).

When Must The Report Be Filed?

FinCEN has begun accepting reports since January 1, 2024. Companies established before January 1, 2024 have until January 1, 2025 to file. Companies formed after January 1, 2024 have ninety (90) days after the company becomes effective to submit a report. There is no fee required to file this report.

Beneficial Ownership Information Reports can be filed using the BOI E-Filing System at: https://boiefiling.fincen.gov/

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It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice, it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please contact me using the contact information listed above.

All information and references made to laws, rules, regulations, and advisory opinions were accurate based on the law as it existed at this time, but laws are constantly evolving. Please contact me to be sure that the law which will govern your business is current. Thank you.