New Corporate Reporting Rules: What You Need to Know Now
The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act, introduces new reporting requirements for corporations, S-Corporations, limited liability companies (LLCs), and other entities formed or registered to do business in the United States. The key focus of the CTA is the collection of Beneficial Ownership Information (BOI), which aims to increase transparency in business ownership to combat money laundering, tax evasion, and financial crimes.
What Does the CTA Require?
Starting in 2024, newly formed corporations, LLCs, limited partnerships, and other entities that register with a state’s Secretary of State’s office (or similar government agency) must file a report with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) within 90 days of formation. This report must include detailed information about the entity's beneficial owners.
Entities in existence before January 1, 2024, must comply with the CTA by filing these reports no later than January 1, 2025.
Reporting Beneficial Ownership
Beneficial owners are defined as individuals who directly or indirectly own at least 25% of the entity's ownership interests or have substantial control over the company. This broad definition means the CTA may impact not only significant owners but also senior officers and other individuals involved in the company's major decisions, such as board members.
To comply with the reporting requirements, businesses must provide FinCEN with the following information for each beneficial owner:
- Full legal name
- Residential address
- Date of birth
- Unique identification number from a non-expired passport, driver’s license, or state-issued identification card
- An image of the identification document used
Information about "company applicants"—those responsible for filing the formation/registration paperwork—must also be provided.
Deadlines and Penalties
The deadlines vary depending on when the business was formed:
- Newly formed entities (in 2024 and beyond) must file a report within 90 days of formation.
- Existing entities (prior to 2024) must file by January 1, 2025.
If any information changes, such as a beneficial owner’s address, name, or identification number, the entity must update its report within 30 days. Failure to comply with these reporting requirements can result in significant fines, ranging from $500 per day to a maximum of $10,000, and potential imprisonment for up to two years for willful violations.
Exemptions
While the CTA applies to most businesses, some entities may be exempt from these reporting requirements. It is advisable to visit the FinCEN website for more information on the specific exemptions.
Legal and Compliance Guidance
Given the complexity and potential penalties associated with the CTA, it is highly recommended that businesses seek legal counsel to determine whether they are exempt and to ensure compliance with reporting requirements. Missing deadlines or failing to update information could result in severe financial and legal consequences.
Important Resources
The filing process for BOI is managed online via FinCEN’s portal, accessible at fincen.gov/boi. Be proactive in understanding and meeting your obligations to avoid unnecessary penalties.
Please note that Covert & Company does not provide services related to these filings or assume responsibility for missed deadlines. We encourage you to consult with legal professionals for assistance in completing your filings.