The Corporate Transparency Act (CTA) aims to improve transparency and address illicit financial activities. It mandates that entities provide the federal government with information about individuals who hold significant ownership stakes or have substantial control over their operations. This information is submitted through Beneficial Ownership Information Reports (BOIR). In this article, we will explore the details of the Corporate Transparency Act, its goals, and, most importantly, its potential impact on your business.

What Is It and What Does It Mean for Your Business?

The Corporate Transparency Act (CTA) is a federal law enacted in 2021 as part of the National Defense Authorization Act. Its primary objective is to prevent money laundering, terrorism financing, and other illicit financial activities by promoting transparency within corporate structures through BOIR.

What Does the Corporate Transparency Act Do?

The Corporate Transparency Act aims to achieve several key objectives, including:

Combating Illicit Financial Activities

By requiring BOIR, the CTA seeks to deter criminals from using anonymous entities to conduct illegal financial transactions. This increased transparency helps law enforcement agencies identify and investigate suspicious activities more effectively.

Enhancing National Security

The CTA contributes to national security by providing valuable information to intelligence agencies, enabling them to detect and combat threats from illicit financial networks. By closing loopholes that previously allowed for anonymous ownership, the Act improves the ability to identify potential risks and take appropriate action.

Protecting Legitimate Businesses

While the Corporate Transparency Act imposes new reporting obligations, it also protects legitimate businesses from unfair competition. By minimizing the use of shell companies for illegal purposes, the Act promotes a level playing field and fosters an environment of trust and integrity in business transactions.

How Does the Corporate Transparency Act Accomplish its Goals?

Beneficial Ownership Information Reporting (BOIR) is a vital tool for achieving the CTA's objectives. BOIR is the means by which legal entities disclose the identities of their beneficial owners.

A beneficial owner is a natural person with:

By revealing the individuals behind these entities, it becomes more challenging for criminals to hide illegal activities behind anonymous shell companies.

BOIR promotes a more transparent and trustworthy business climate for legitimate businesses. It helps prevent unfair competition from entities engaging in illicit activities, creating a more level playing field for all businesses. In this way, the CTA fosters transparency, enhances security, and safeguards the integrity of business transactions.

Under the CTA, reporting companies must submit their BOIR to FinCEN, a bureau of the US Department of the Treasury responsible for combating financial crimes.

Examples of Information Reported in BOIR

Key details reported include:

How Does the Corporate Transparency Act Impact Your Business?

If you are a business registered in the United States, it's essential to understand how the Corporate Transparency Act and BOIR will affect your operations.

Reporting Requirements

Reporting companies must meet the CTA's reporting requirements, including submitting beneficial ownership information to FinCEN within specified timeframes.

Timeframes for Initial Reporting

The reporting requirement became effective on January 1, 2024. FinCEN began accepting BOIR on that date. Any company created or registered to do business in the US that meets the definition of a reporting company and is not exempt will be required to file by January 1, 2025.

Companies created or registered to do business in the US between January 1, 2024, and January 1, 2025, have 90 calendar days from receiving actual or public notice of their creation or registration to file their initial BOIR. Companies created or registered on or after January 1, 2025, will have 30 calendar days to file.

Updates to Beneficial Ownership Information

In addition to initial reporting, there is an ongoing obligation to keep BOIR up to date. Changes to previously reported information must be reported to FinCEN within 30 days after a change occurs. This includes any changes in the beneficial owners or their information, such as a change in address or contact details. The onus is on the reporting companies to ensure their information is current and accurate.

Examples of changes that would require an updated beneficial ownership information report include:

• Any change to the information reported for the reporting company, such as registering a new business name.
• A change in beneficial owners, such as a sale that changes who meets the ownership interest threshold of 25 percent or which changes the individuals with substantial control. A change in senior officers, such as a new CEO.
• Any change to the entity’s information or any previously reported individual's name, address, or unique identifying number previously provided to FinCEN. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.

Exemptions from Reporting

While the CTA broadly applies to most legal entities, there are specific exemptions to consider. For instance, more heavily regulated entities, such as banks, credit unions, investment companies, and entities already required to report certain information to the federal government are exempt from the CTA's reporting requirements. (Read the full list below.)

Penalties for Failing to Submit A BOIR

Failure to meet the reporting obligations under the CTA can result in significant penalties. These penalties may include fines of over $500 per day or even criminal charges. Therefore, businesses must ensure timely and accurate reporting.

Corporate Transparency Act Exemptions

While many businesses must comply with the Beneficial Ownership Reporting requirements laid out by the CTA, specific exemptions relieve certain organizations from filing. There are 23 types of entities that are exempt from reporting:

1. Securities reporting issuers
2. Governmental authorities
3. Banks
4. Credit unions
5. Depository institution holding companies
6. Money services businesses
7. Brokers or dealers in securities
8. Securities exchange or clearing agencies
9. Other Exchange Act registered entities
10. Investment companies or investment advisers
11. Venture capital fund advisers
12. Insurance companies—Including any company whose “primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies,” as per 15 U.S.C. 80a-2
13. State-licensed insurance producers
14. Commodity Exchange Act registered entities
15. Accounting firms
16. Public utilities
17. Financial market utilities
18. Pooled investment vehicle
19. Tax-exempt entities—Under Sections 501(a), 501(c), 527(a), 527(e)1, and 4947(a) of the Internal Revenue Code of 1986
20. Entities assisting a tax-exempt entity—Any entity that exclusively governs or financially assists the above tax-exempt entities
21. Large operating companies—Companies with over 20 full-time employees and over $5 million in annual sales
22. Subsidiaries of certain exempt entities—Exemptions 1–21, excluding #6 and #18
23. Inactive entities—Entities that existed on or before January 1, 2020, which currently aren’t engaged in any business activity or hold any assets, and haven’t had any ownership changes or received over $1,000 in the previous 12 months

It is essential to note that while these exemptions exist, businesses should carefully review their eligibility for each exemption category and consult legal counsel if needed.