Welcome to our Frequently Asked Questions page on the Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI) Reports. These FAQs are designed to provide a preliminary understanding of the new requirements, responsibilities, and implications of the Act.
The Corporate Transparency Act (CTA) is part of the National Defense Authorization Act for Fiscal Year 2021, which was signed into law in the United States on January 1, 2021. The CTA aims to improve transparency by requiring certain business entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
The primary goal of the CTA is to combat money laundering, terrorist financing, and other illicit activities by making it more difficult for individuals to anonymously control or financially benefit from U.S. companies. The act applies to corporations, limited liability companies (LLCs), and other similar entities created under the laws of a State or a foreign entity registered to do business in the United States.
Specifically, these reporting companies are required to submit a Beneficial Ownership Information (BOI) Report that includes details about the individuals who either directly or indirectly control the company or own 25% or more of the ownership interests in the company.
The act provides exemptions for certain types of companies, such as publicly traded companies, banks, and other financial institutions that are already subject to federal regulations requiring disclosure of beneficial ownership information.
The CTA represents a significant change in the U.S. anti-money laundering (AML) regulatory framework and has broad implications for both domestic and international businesses operating in the United States.
A Beneficial Ownership Information (BOI) Report is a filing requirement under the Corporate Transparency Act (CTA) in the United States. The report is submitted to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The primary purpose of the BOI Report is to provide information about the "beneficial owners" of certain business entities, which include corporations, limited liability companies (LLCs), and other similar entities.
A "beneficial owner" in this context is generally defined as an individual who, directly or indirectly, either owns a significant stake (usually 25% or more) in the company or has substantial control over the company. The BOI Report is designed to identify the real individuals behind business entities, rather than just the legal entities themselves.
Specifically, the BOI Report requires the disclosure of:
The main goal of the BOI Report is to enhance transparency and prevent the misuse of U.S. businesses for illicit purposes such as money laundering, terrorist financing, and tax evasion. Companies subject to the CTA are obligated to file a BOI Report and update the information within a certain time frame if there are any changes. Failure to comply can result in civil and criminal penalties.
Domestic and Foreign Entities that are in existence as of January 1, 2024 or that are formed on or after January 1, 2024.
BOI (Beneficial Ownership Interest) Reports filed with FinCEN will report the identity of two categories of individuals as they relate to the Reporting Entity:
A Beneficial Ownership Information (BOI) reports four pieces of information about the Beneficial Owners, and in some cases, the Company Applicants
Details on the Reporting Company Information to be Provided:
Beneficial Owner Information ( For every individual who is a beneficial owner of such reporting company) AND Company Applicant Information (up to 2 persons)
For companies formed after January 1, 2024, they must also provide information for up to 2 company applicants:
Company Applicant Information
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report.
A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
A Beneficial Owner of an entity is defined as either:
A beneficial owner is an individual who either:
Has substantial control over a company, typically as a senior officer or through decision-making authority, such as appointing senior officers or a majority of the board, or significantly influencing important company matters, or
Owns or controls at least 25% of the company's ownership interests, including equity, capital or profit interests, convertible instruments, and other rights to acquire interests in the company.
This can apply directly or indirectly, accommodating various business structures and management styles.
In trusts, the beneficial owner may be the trustee, an individual with authority over trust assets, a beneficiary with certain rights, or a grantor or settlor who can revoke the trust or withdraw its assets.
Ownership interest is calculated by comparing an individual's total interests to all of the company's outstanding interests, with specifics depending on the type of interest issued. Options and similar interests are treated as exercised during this calculation. The rule is designed to be clear yet flexible for different ownership structures, as per the CTA's requirements.
An individual is deemed to have "substantial control" over a reporting company if they serve as a senior officer, possess authority over senior officer appointments or the removal of a majority of the board of directors, or can significantly influence important company decisions. Exceptions are corporate secretary and treasurer roles, which generally yield minimal control over the company. Substantial control can be direct or indirect and is adaptable to diverse business structures and management styles.
Ownership is defined by a minimum of 25% control of a company's ownership interests, which include equity, capital or profit interests, convertible instruments, and other rights to acquire company interests. Debt instruments are considered if they allow the holder rights equivalent to other specified types of interests, including conversion to such interests. These definitions are usually straightforward, but complex business structures or financial arrangements might necessitate extra scrutiny and professional advice.
Trust assets are deemed to be owned or controlled by trustees and individuals with authority over trust assets, as well as by beneficiaries under certain conditions or grantors or settlors who can revoke the trust or withdraw its assets.
The calculation of total ownership interests is based on an individual's total interests relative to the company's total outstanding interests, including specific guidelines for entities issuing capital and profit interests, shares, and a catch-all provision for entities that don't fit the previous categories. Options and similar interests are considered exercised in these calculations. The rule provides clarity and flexibility for various ownership structures, marking a departure from the approach of the 2016 CDD Rule in line with CTA requirements.
WHO IS NOT CONSIDERED A BENEFICIAL OWNER:
An individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:
Financial Institutions and Markets:
Government and Public Entities:
Securities and Investment Entities:
An entity is exempt from filing BOI reports with FINCEN if it qualifies as an 'Inactive Entity,' as defined by meeting ALL of the following six conditions:
An entity qualifies for this exemption if all six of the following criteria apply:
Foreign pooled investment companies qualify for this exemption if both of the following criteria apply:
The entity is a pooled investment vehicle if either of these statements apply to the entity:
The entity is operated or advised by any of these types of exempt entities:
(the definitions to meet these exemptions are included in the next FAQ)
Special rule for foreign pooled investment vehicles.
If an entity meets the criteria of Exemption #18 and is formed under the laws of a foreign country, the entity is subject to a separate reporting requirement. These companies are referred to as “foreign pooled investment vehicles” in the Reporting Rule and their reporting requirement is explained in Chapter 4.2 of this Guide. See special rule at 1010.380(b)(2)(iii).
You do not need to report information about each beneficial owner and company applicant if your company was formed under the laws of a foreign country and would be a reporting company if not for the pooled investment vehicle exemption (Exemption #18).
If this special rule applies, you must report one individual who exercises substantial control over the company. You do not need to report any company applicants. If more than one individual exercise substantial control over the company, you must report information about the individual who has the greatest authority over the strategic management of the company
FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.
Only reporting companies created or registered on or after January 1, 2024, will need to report their company applicants.
A company that must report its company applicants will have only up to two individuals who could qualify as company applicants:
The following flowchart can help identify the company applicant.
If a person has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report, then the Corporate Transparency Act creates a safe harbor from penalty. However, should a person willfully fail to report complete or updated beneficial ownership information to FinCEN as required under the Reporting Rule, FinCEN will determine the appropriate enforcement response in consideration of its published enforcement factors.
The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
Providing false or fraudulent beneficial ownership information could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document.
Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.
For example, an individual who qualifies as a beneficial owner or a company applicant might refuse to provide information, knowing that a company would not be able to provide complete beneficial ownership information to FinCEN without it. Also, an individual might provide false information to a company, knowing that information is meant to be reported to FinCEN
Upcoming Webinar: We will be hosting a webinar dedicated to the Corporate Transparency Act between October 17, 2023 - October 31, 2023. Click this link to register to receive the invite as well as other information related to the CTA. Click here to register to receive CTA information.
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Official Guidelines: FinCEN Small Business Resources
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