Business Owners and the CTA, What You Need to Know
Executive Summary
The Corporate Transparency Act (CTA), will go into effect for most businesses on January 1, 2025. The CTA requires all “Reporting Companies”, broadly defined to include corporations, LLC’s and similar entities, such as limited partnerships, to register ownership and certain other information with the Financial Crimes Enforcement Network (FinCEN). This can be done fairly easily at https://boiefiling.fincen.gov/
If a company was formed after January 1, 2024, then the company must complete its report with FinCEN within 90 days of formation as opposed of waiting until January 1, 2025. Civil penalties for failing to comply with the CTA start at $500 per day, up to $10,000, for every day the violation continues.
The Details
This is not legal advice, and the information contained in this article is valid at the time of writing. The CTA was passed as federal legislation a few years ago as a means of enhancing corporate transparency and combating financial crimes, particularly money laundering and terrorist financing. Noncompliance with the CTA may result in significant fines and prison terms.
Affected reporting companies must file a Beneficial Ownership Information Report (BOIR) with FinCEN, a bureau of the U.S. Department of Treasury. Broadly defined, reporting companies include entities created or registered by a filing with a state, Indian Tribe, or similar agency, and include corporations, S-corps, LLCs, and similar business formations. Generally speaking, sole proprietorships, general partnerships, and certain trusts will fall outside the scope of the CTA if no state filing is required for their formation.
There are 23 categories of entity exemptions, the most applicable for smaller organizations would be tax-exempt entities, such as those formed under Internal Revenue Code section 501(c).
If your company is a reporting company, your next step is to identify its beneficial owners.
A beneficial owner is any individual who, directly or indirectly:
Exercises substantial control over a reporting company;
OR
Owns or controls at least 25 percent of the ownership interests of a reporting company.
An individual might be a beneficial owner through substantial control, ownership interests, or both. Reporting companies are not required to report the reason (i.e., substantial control or ownership interests) that an individual is a beneficial owner. A reporting company can have multiple beneficial owners. For example, a reporting company could have one beneficial owner who exercises substantial control over the reporting company, and a few other beneficial owners who own or control at least 25 percent of the ownership interests of the reporting company. A reporting company could have one beneficial owner who both exercises substantial control and owns or controls at least 25 percent of the ownership interests of the reporting company. There is no maximum number of beneficial owners who must be reported. FinCEN expects that every reporting company will be substantially controlled by one or more individuals, and therefore that every reporting company will be able to identify and report at least one beneficial owner to FinCEN.
Required Information for Filing
Reporting Company:
Full legal name
Any trade or DBA name
Complete current U.S. address
State, Tribal, or foreign jurisdiction of formation
IRS Taxpayer Identification Number (TIN) - including an Employer Identification Number (EIN)
Each Beneficial Owner and Company Applicant
Please note that not all reporting companies are required to report information about company applicants:
Full legal name
Date of birth
Complete current address
Unique identifying number, such as a U.S. passport, state driver’s license or identification document issued by a state or local government. IMPORTANT: the respective image of the identifying number used must be provided as well, hence it is likely easier for the individual to provide the information directly through the FinCEN filing system at https://boiefiling.fincen.gov/ rather than hiring a third party to do it.
What Other Information Do I Need as a Small Business Owner?
FinCEN’s website has quite a few easy-to-follow resources and instructions to help ensure businesses can easily comply with the CTA. A list of those resources can be found here:
https://boiefiling.fincen.gov/help
The Beneficial Ownership Information Small Entity Compliance Guide is also very informative, and can be found here:
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
The guide goes into detail on many of the filing features, such as exempt companies, with examples as well.
The general rule of thumb with the CTA appears to be that (a) there is no harm in filing if you are wondering if you need to and, (b) the filing can be done in less than 15 minutes if you have the information above. This is an easy process to avoid a potentially heavy fine. Please feel free to reach out to your Quantum advisor with any related questions.
DISCLOSURE: Quantum Financial Advisors, LLC (“Quantum”) is an SEC registered investment adviser with its principal place of business in the State of California. Quantum may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. The article is for educational purposes only; and contains the opinions of the author, which are subject to change, and should not be considered or interpreted as legal advice, a recommendation to participate in any particular trading strategy or deemed to provide investment recommendations, and it should not be relied on as such. Any subsequent, direct communication by Quantum with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.
For information pertaining to the registration status of Quantum, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).
