The Corporate Transparency Act: Your Questions, Answered
October 25, 2023
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On December 23, 2024, the Fifth Circuit Court of Appeals granted a stay over the nationwide injunction issued by the U.S. District Court for the Eastern District of Texas (Sherman District), thereby reinstating the beneficial ownership filing requirements under the Corporate Transparency Act ("CTA").
Accordingly, all entities that are considered "reporting companies" under the CTA, including small businesses and community associations, must file their "beneficial owner information" with FinCEN before January 13, 2025.
About the Corporate Transparency Act
The Corporate Transparency Act (the "CTA") went into effect on January 1, 2024, and was created to provide law enforcement with beneficial ownership information ("BOI") related to specific business entities to detect, prevent, and punish terrorism, money laundering, and other misconduct. Under the CTA, certain domestic companies and foreign companies doing business in the United States must report owner information to the U.S. Department of Treasury's Financial Crimes Enforcement Network ("FinCEN").
For purposes of this notice, a company required to report BOI to FinCEN is known as a "Reporting Company." Under the CTA, most companies with fewer than twenty (20) full-time employees (i.e., one who works an average of at least 30 hours per week) and less than five million dollars ($5,000,000.00) in annual revenue (based on previous year's tax return) must report BOI within the following timeframes:
- by January 13, 2025, if company was formed before January 1, 2024;
- within ninety (90) days following company formation, if formed on or after January 1, 2024, and before January 1, 2025;
- within thirty (30) days following company formation, if formed on or after January 1, 2025; and
- any changes to beneficial owners must be reported within thirty (30) days.
Required Information
The information required for a company includes the company's full name, any trade name or "doing business as" name, its business address (the company's primary address, not a registered agent's address), its state or tribal jurisdiction of formation, and an IRS Taxpayer Identification Number (TIN) or Employer Identification Number (EIN). The information required for a beneficial owner (and a company applicant, if applicable) includes the person's full legal name, date of birth, current residential street address (or business address, for a company applicant), and a unique identifying number evidenced via an image of one of the following nonexpired documents: U.S. passport, state driver's license, or another identification document issued by a state or local government (i.e., a state identification card).
Alternatively, to simplify reporting for individuals with interests in many companies, a beneficial owner or company applicant may obtain a "FinCEN Identifier" here to provide in lieu of the required information.
Beneficial Owners
Full information on who qualifies as a beneficial owner under the CTA can be found here. In a nutshell, a beneficial owner is an individual who:
- either directly or indirectly exercises substantial control over the Reporting Company (Note: Individuals exercising substantial control may include a senior officer, anyone with authority to appoint or remove officers, or another important decision-maker.) OR
- owns or controls at least twenty-five percent (25%) of the Reporting Company's ownership interest.
Company Applicant
In addition to providing information regarding beneficial owners, companies formed on or after January 1, 2024, must also report company applicants, meaning the individual who either: (i) physically or electronically files the document creating a domestic or foreign company registered to do business in the United States; or (ii) directs or controls the document that created or registered the reporting company. If one individual directly files the document and another individual directs or controls the filing, both individuals must be identified.
For example, if an individual from the reporting company has directed an attorney to form a company, both that person directing the attorney and the attorney are considered company applicants under the CTA. Companies existing before January 1, 2024, need not report company applicants.
Reporting Online
To facilitate reporting under the CTA, the U.S. government set up a website, with specific instructions available here. The required information is submitted electronically through a secure portal. There is no charge for reporting.
Noncompliance and Penalties
Please be aware, failure to submit a complete initial report (and updated report) to FinCEN within the specified timeframe may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues (with no limit) or criminal penalties including imprisonment for up to two (2) years, a fine of up to $10,000, or both. Penalties run from the day the required information becomes known or an inaccuracy in a previously filed report is discovered or should have been discovered, whichever is earlier. Senior officers of an entity that fail to file a required BOI report may be subject to the same sanctions.
Additional Information
For further information regarding filing requirements, please see these resources:
The Corporate Transparency Act: Your Questions, Answered
Financial Crimes Enforcement Network's Beneficial Ownership Information
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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.
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