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NEW FEDERAL COMPANY OWNERSHIP REPORTING REQUIREMENTS GOING INTO EFFECT IN JANURAY 2024:

WHAT YOU NEED TO KNOW AND DO

In 2020, Congress passed broad anti-money laundering legislation called the Corporate Transparency Act (CTA). The CTA creates a new national database of companies and requires each company to report basic information on the company including the beneficial ownership of the company and information on each beneficial owner. Although entity organization is a state-level function, CTA filings will be made with a division of the U.S. Department of Treasury called FinCEN (Financial Crimes Enforcement Network). FinCEN has issued many pages of regulations outlining the filing requirements.

Here is a general overview of what you need to know.

Even though the CTA aims to combat opaque criminal and malign activity, legitimate businesses – including almost all small businesses – are required to electronically file reports and then update those reports when any information changes. Mandatory reporting begins on January 1, 2024.

Almost all kinds of organized entities – corporations, LLCs, limited partnerships, business trusts, etc. – must file CTA reports unless they qualify for one of 23 specific exemptions. Companies in regulated industries (such as banking, insurance, securities, etc.) and 501(c) charitable entities may qualify for an exemption. Another exemption is available to large companies (more than 20 full time employees in the U.S. and more than $5 million of gross receipts on prior year’s tax filing). There is also an exemption for a company that is inactive (defined as less than $1,000 in or out of the company in the past year and no ownership changes in the past year). Of note, exemptions are very technical and limited in applicability. If you think your business is exempt, we recommend consulting with your contact at Kitchens Kelley Gaynes. But, ultimately, the vast majority of small businesses will be required to file CTA reports.

Each “Reporting Company” will be required to file two types of information (plus any company formed in 2024 going forward will also need to file information on the person making the company’s organizational filing). The first category is basic information about the company; the second category is information on each “Beneficial Owner” of the company. Here is a summary of the information to be reported:

Reporting Company

  • Full legal name of the Reporting Company.
  • Any trade name or d/b/a.
  • Address of principal place of business.
  • Jurisdiction of formation or registration.
  • Unique identification number (e.g. Employer Identification Number (“EIN”)).

Beneficial Owner

  • Full legal name of individual.
  • Date of birth.
  • Residential street address.
  • Unique identification number from one of the following: (a) non- expired U.S. passport, (b) a non-expired governmental identification document issued by a State, local government, or Indian tribe, (c) a non-expired State issued driver’s license; or (d) a non-expired passport issued by a foreign government if the individual does not possess any of the documents described in (a), (b), or (c).
  • An image of the document from which the unique identifying number was obtained (identification number and photograph must be legible and recognizable).

A Beneficial Owner of a Reporting Company is a person that directly or indirectly (x) owns or controls 25% or more of the company ownership interests, or (y) exercises “substantial control” over the company. Exercising substantial control includes, but is not limited to, (i) being a “senior officer” (e.g. CEO, CFO, COO, general counsel, etc.); (ii) having the power (directly or indirectly) to appoint or remove an officer; or (iii) having the ability to direct or have substantial influence over important decisions made by the Reporting Company.

The regulations define “ownership interests” very broadly and contain detailed provisions for determining percentages of ownership. Given the broad definitions and the use of “directly or indirectly” to describe what qualifies as “owns or controls”, many companies will need to put significant analytical effort into identifying all people that qualify as Beneficial Owners.

Any entity formed on or after January 1, 2024 must file within 30 days of notice of initial organization formation. Any Reporting Company already existing on December 31, 2023 must make its initial filing before January 1, 2025. Once a company makes a filing with FinCEN, if any information changes (e.g., a Beneficial Owner’s residential address changes because they move) or if the company has become aware of any inaccurate information in a prior filing, the filing must be updated within 30 days. Here is a summary of filing deadlines:

Beneficial ownership information (“BOI”) report to be filed for entities formed or registered before January 1, 2024

January 1, 2025

BOI report to be filed for entities formed or registered on orafter January 1, 2024

30 days after receiving actual or public notice of formation*

Deadline to update filed BOI

30 days after the change

Deadline to correct erroneous BOI

30 days after becoming aware or having reason to know of error

Previously exempt entities that are no longer exempt

30 days after loss of exemption

* On September 28, 2023, FinCEN proposed temporarily extending the initial BOI reporting deadline for entities formed or registered on and after January 1, 2024, andbefore December 31, 2024, from 30 days to 90 days. While it is highly likely this temporary extension will go into effect prior to January 1, 2024, please confirm the extension prior to filing any initial BOI outside of the current 30-day window. Of note, this is a time limited, temporary extension and applies only from January 1, 2024, to December 31, 2024. As of January 1, 2025, all entities formed or registered will need to file their initial BOI report within 30 days of receiving actual or public notice of formation.

The reporting requirement applies to non-U.S. entities operating in the U.S. (both as Reporting Companies and as Beneficial Owners) and to persons living outside of the U.S. (e.g., as Beneficial Owners).

The CTA provides that non-compliance is subject to both civil (fines) and criminal (fines/imprisonment) penalties. Non-compliance means failing to file (initial reports and timely updates) or filing false or fraudulent information. On the civil side, FinCEN can impose fines of up to $500 per day for the period a violation is outstanding. A criminal conviction can result in a fine of up to $10,000 per violation and up to 2 years imprisonment. Note that a person is considered to “fail to report” if they caused the failure (i.e., provided incorrect information) or is a senior officer of the company at the time of the report. This puts significant pressure on officers to make certain that company filings are accurate.

CTA reports will be filed electronically using a portal (called “BOSS”) that will not be available until (at the earliest) January 1, 2024. FinCEN expects about 30 million filings to be made in 2024 and 5 million filings each year thereafter.

For the first time, companies (especially small businesses) must report beneficial ownership information (i.e., detailed information on the individuals that own or control the company) to the federal government. Each report – company level and Beneficial Owner level – requires detailed information. Companies and their owners/senior management/officers need to start compiling the required information and preparing for the CTA reporting process. For example, under the regulations, a minority owner of a small business may be a Beneficial Owner. Even someone that does not own any equity interest may be a Beneficial Owner if they have the right to direct the management of the company.

To help small businesses navigate this massive new regulation, FinCEN published a handbook called the Small Entity Compliance Guide. This guide has checklists and flow charts to help companies determine whether they qualify for an exemption and who qualifies as a beneficial owner. You can access FinCEN’s Small Entity Compliance Guide and other resources at: https://www.fincen.gov/boi/small-business-resources.

We here at Kitchens Kelley Gaynes recognize this will be a big change for many of our clients. While compliance may at first appear complex and cumbersome, with a few adjustments in record keeping and learning how to use the reporting system, we believe CTA compliance can be achieved without major disruptions. If you have questions or are looking for more information on CTA reporting, call or email your KKG attorney contact.

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