The Corporate Transparency Act: What it is and Who it Affects

Published on February 12, 2024

Are you aware of the Corporate Transparency Act? This was enacted in 2021 and became effective on January 1, 2024, under the aegis of FinCEN—the Financial Crimes Enforcement Network of the United States Department of the Treasury.


What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) was passed to curb illegal finance operations among companies doing business in the U.S. or accessing the U.S. market. The activities in the Treasury Department’s sights are tax fraud and tax evasion, money laundering, and financing of terrorism. The legislation requires that business owners /companies that meet the criteria report certain information about the individuals who own or control the companies.

Reporting companies that are created on or after January 1, 2024 must provide personal details about the individual who is the company applicant; that is the person who files the relevant document to create a domestic company or register a foreign company. The company applicant may also be someone mainly responsible for overseeing or controlling that business filing.

The BOI reporting guidelines are on the FinCEN website.

What types of companies qualify?

Domestic companies that must submit BOI reports are corporations, limited liability partnerships (LLPs), limited liability companies (LLCs), or certain other entities (such as a business trust) that were created by filing a document with a secretary of state or similar office under the law of a state or Indian tribe. This filing stipulation is what qualifies an entity as a reporting company.

Similarly, foreign reporting companies are corporations, limited liability corporations, and other entities formed under a foreign country’s law and are registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

According to FinCEN, there are exemptions from BOI reporting.

  1. Sole proprietorships that do not use a single-member LLC
  2. Sole proprietorships that file a document with a government agency to obtain an IRS employer ID number, a fictitious business name, or a professional or occupational license. These are circumstances that do not create a new entity and therefore, the sole proprietorship filing these documents is not a reporting company.
  3. Publicly traded companies, large operating companies, other regulated entities, and businesses that meet other specific criteria such as those already filing reports with the federal government that name beneficial owners, entities registered with the SEC, or companies in heavily regulated industries (public utilities, public accounting firms, insurance companies, and financial institutions are good examples).


Who is a beneficial owner?

Under the Corporate Transparency Act, beneficial owners are individuals who have a significant ownership stake (direct or indirect) in a company. As such, this person exercises a major influence on the company’s decisions or operations and owns or controls at least 25% of the company shares or company interests. Those ownership interests are represented by capital and profit interests in the reporting company.   There can be multiple beneficial owners in one company.


What information is collected on the BOI report?

The beneficial owner’s name, birth date, address, and unique identifier number, which is from a recognized issuing jurisdiction; the beneficial owner must also submit a photo of that document. The information reported is not made public. It is only available to the U.S. Department of the Treasury and select government agencies (for purposes of national security, law enforcement, and intelligence), financial institutions that must fulfill certain reporting obligations, and regulatory agencies that oversee financial institutions.

For now, there is no requirement for reporting companies to file a report annually. However, after the initial filing, the reporting company must submit an updated BOI report with any changes in the company, including a change in beneficial ownership, within 30 days of the change.


Where and how to file a BOI

The Corporate Transparency Act requires that companies submit all BOI reports to FinCEN directly or through a third-party provider to FinCEN. Entities may not submit BOI information to the Secretary of State or other state corporate filing office.

At Next Generation, we recommend that business owners consult their trusted advisor (CPA or attorney) before filing the initial report or to make sure an updated BOI is done correctly and that it complies with FinCEN requirements. Note that failing to file timely may trigger fines and failure to file intentionally can cause serious penalties.


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