The Corporate Transparency Act (CTA) created requirements for companies in the US to file information about their entities and Beneficial Owners to FinCEN. The Financial Crimes Enforcement Network (FinCEN) is responsible for combating financial crimes in the US. Because it hasn't come into effect, the details may change slightly, particularly in exactly how companies can file.

Starting January 1, 2024, all new companies must file information with FinCEN within 90 days of formation. Companies formed before January 1, 2024 have one year to file with FinCEN (until January 1, 2025).

The law applies to most companies in the US, with some important exemptions.

What information do businesses need to provide?

Each company needs to file information about itself:

• Full name of the reporting company
• Any trade or d/b/a names of the reporting company
• Street address of the principal place of business (can’t be a P.O. box or the address of a company formation agent or other third party)
• State (or foreign jurisdiction) of formation
• TIN (including an Employer Identification Number (EIN))
• Foreign companies can provide a foreign TIN

Each company also needs to file information about every Beneficial Owner (you may see this described as Beneficial Owner Information, BOI):

• Full legal name
• Date of Birth
• Current residential street address
• Unique identifying number from an identification document (e.g., a passport) and jurisdiction of that document - or the individual's FinCEN identifier
• U.S. passport;
• a state, local, or Tribal government issued identification document
• a State-issued driver's license;
• or, if an individual lacks one of those other documents, a foreign passport
• Can get a FinCEN number after their initial filing, which they can use for subsequent filings‍
• Image of a non-expired document proving the ID number provided

What is a Beneficial Owner?

Any person who either:

• Exercises substantial control over the reporting company (e.g. a senior officer of the company that has authority over the appointment or removal of any senior officer or a majority of the board of directors)

• Owns or controls at least 25 percent of the ownership interests of a reporting company (directly or indirectly)

Also, anyone who actually files the documents that created the company, such as their lawyer or the lawyer’s paralegal or other staff (the “Company Applicant”), must also have their information reported with the initial filing.

What are the penalties?

An individual may file a report on behalf of a reporting company, but the reporting company is “ultimately responsible” for the filing, and liability lies with the actual people listed on the filing. The penalties are steep: civil penalties up to $10,000, and criminal penalties up to 3 years in jail.

What is the point of the Corporate Transparency Act?

The stated purpose of the law is to prevent illicit actors from using shell and front companies to hide their identities and launder money, which helps counter terrorism, for example.

Who is exempt from the Corporate Transparency Act?

There are more than 20 types of companies exempt from the CTA, mainly companies that already provide Beneficial Ownership Information in some other capacity, or highly regulated companies, like banks, insurance companies, and tax-exempt entities.

Importantly, “Large Operating Companies” are also exempt. Large Operating Companies:

• Have more than 20 full-time employees in the US
• Have a physical presence in the US
• Filed taxes showing more than 5M in sales in the past year (excluding sales outside the US)

What happens if any of the information you submitted changes?

If any of the previously provided information changes (except for the Company Applicant’s information), the company must file an updated report within 30 days.

If you want to read the actual rules and guidance directly from FinCEN, you can do so here.

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We built Discern to automate compliance tasks like meeting your business’s requirements under the Corporate Transparency Act. Discern can also tell you whether you need to foreign register, automate annual report filing, and help with franchise tax.

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