The Corporate Transparency Act (CTA), aimed at combating illicit financial activity, went into effect on January 1, 2024. Under the act, small businesses across the United States need to file beneficial ownership information reports, also known as corporate transparency reports.
For most eligible small businesses, the deadline to file these reports is January 1, 2025. Here’s everything small business owners need to know about filing a corporate transparency report.
[Read More: What Every Small Business Needs to Know About the Corporate Transparency Act]
What to know about beneficial ownership information reporting
The CTA was developed to increase transparency in business ownership and curtail the use of anonymous shell corporations for tax fraud, money laundering, and other illegal financial activity. Under this act, all businesses that fall under the definition of a reporting company must file a beneficial ownership information report (BOIR) with the Financial Crimes Enforcement Network (FinCEN).
A reporting company is any privately held company, whether domestic or foreign, registered to conduct business in the U.S. Publicly traded companies do not fall under the CTA, as they are subject to their own reporting requirements.
A beneficial owner is any individual who owns or controls at least 25% of an organization, or directly or indirectly exercises substantial control in any of the following roles:
- They serve as a senior officer, such as a president, CEO, or general counsel.
- They have the authority to appoint or remove senior officers, board members, or other similar roles.
- They make important decisions concerning the company’s business, finances, and/or structure.
[Read More: How to Prevent Bank Fraud and Protect Your Business Account]
Reporting requirements for small businesses
Eligible small businesses will need to report the following information about their companies:
- The full legal name of the company.
- The company’s business address; P.O. boxes or lawyer’s/adviser’s offices cannot be accepted.
- The state or Tribal jurisdiction where the company was formed or first registered.
- The taxpayer identification number and an identity document, such as a filed Articles of Incorporation or Organization.
Corporate transparency reports must also include the below information about any beneficial owners:
- Their full legal name and date of birth.
- Their home address; P.O. boxes or lawyer’s/adviser’s offices cannot be accepted.
- A photocopy of their U.S. driver’s license or passport.
Under this act, all businesses that fall under the definition of a reporting company must file a beneficial ownership information report (BOIR) with the Financial Crimes Enforcement Network (FinCEN). Anyone who willfully violates the above reporting requirements may be subject to civil penalties of up to $591 per day. They may also face criminal penalties of up to two years imprisonment and a fine of up to $10,000.
Federal reporting versus financial institution reporting
In addition to the above federal reporting requirements, many financial institutions also require small businesses to submit beneficial ownership information. This practice protects the institution from being used to conduct illicit business activity.
FinCEN can share beneficial ownership information with government agencies, law enforcement agencies, and some financial institutions. However, a small business cannot fulfill their federal reporting obligations by submitting information to their financial institution.
The CTA was developed to increase transparency in business ownership and curtail the use of anonymous shell corporations for tax fraud, money laundering, and other illegal financial activity. Under this act, all businesses that fall under the definition of a reporting company must file a beneficial ownership information report (BOIR) with the Financial Crimes Enforcement Network (FinCEN).
How to file your corporate transparency report
As of January 1, 2024, FinCEN has begun accepting beneficial ownership information reports. Here are four steps you can take to prepare your corporate transparency report.
1. Determine whether your business is required to file.
Under the CTA, LLCs and corporations must file beneficial ownership information reports unless they qualify for an exemption. There are 23 types of entities that are exempt from reporting, including:
- Large operating companies; those with over 20 full-time employees in the U.S. and over $5 million in gross sales or receipts from U.S.-based sources.
- Inactive entities that were established on or before January 1, 2020, but are not in active business.
- Nonprofits except ones that have their non-profit status pending with the IRS.
- Small businesses that are members of the National Small Business Association (NSBA) as of March 1, 2024, the date a federal court ruled in favor of NSBA’s constitutional challenge to CTA.
If your company is not an LLC or corporation, establish whether your business falls under the definition of a reporting company as defined above. A legal professional can also help you make this determination.
[Read more: How to Choose a Legal Entity for Your Startup]
2. If your business qualifies, learn who the beneficial owners are.
List out any individuals who own or control 25% of your company, or otherwise exercise substantial control as defined above. If you are unsure if an individual meets the requirements of a beneficial owner, consult with a legal professional.
Once you have identified any beneficial owners, contact each to inform them that the CTA requires your business to report their personal information to FinCEN. Beneficial owners can choose to apply for a FinCEN Identifier and provide information to FinCEN directly. Otherwise, they can send the necessary information directly to you (the company) to be included in your business’s beneficial ownership information report.
3. Create a procedure.
Whether your beneficial owners are submitting their information via FinCEN or to your company, establish a process to keep all personal information organized, secure, and current. In addition to your initial report, you will need to file updated reports should there be a change in personal information or beneficial ownership.
4. File your report online.
All companies required to submit beneficial ownership information reports must file online via FinCEN. You can file one of two ways:
- Complete and upload a PDF. Download a copy of the blank BOIR form as a PDF here and fill in the information. They can then upload the completed PDF using this page. It should be noted that Adobe Acrobat is required to open and complete this PDF.
- Use FinCEN’s online platform. If you do not have Adobe Acrobat or simply wish to complete and file your BOIR within FinCEN’s platform, you can visit this page and follow the prompts. You will need to fill in information for and upload a photo of an identification document for each beneficial owner.
Filing deadlines are as follows:
- Reporting companies established before January 1, 2024, have until January 1, 2025, to file their initial corporate transparency reports.
- Companies established between January 1, 2024, and January 1, 2025, must file within 90 days from the notification or public announcement of their formation, whichever date comes first.
- Companies established on or after January 1, 2025, must file within 30 days from the notification or public announcement of their formation, whichever date comes first.
- Any corrections or updates to previously filed beneficial ownership information must be submitted within 30 days.
For additional information on corporate transparency reporting, visit fincen.gov/boi.
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