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The Corporate Transparency Act and Your Business
A new federal law is now in effect as of January 1st, 2024. It will impact millions of small business owners and companies by mandating more transparency on information reported to the federal government.
The Basics
The Basics
What is it?
The Corporate Transparency Act represents the culmination of more than a decade of congressional efforts to implement beneficial ownership reporting for business entities. When fully implemented in 2023, it will create a database of beneficial ownership information within the US Financial Crimes Enforcement Network (FinCEN).
Who does this apply to?
If you control or own, or even lend money to an LLC, for profit corporation, Limited Partnership, LLP, LLLP, or Statutory trust, you are obligated to file an annual report with FinCEN (US Financial Crimes Enforcement Network). This is required by your company and its owners.
When does this law start?
The Corporate Transparency Act was passed in 2021 primarily to combat money laundering and terrorism. Bad actors – people who are engaged in money laundering and other illicit activities – don't do it in their own name. They do it through LLCs, corporations, and other similar entities. As of January 1, 2024, all business entities will be required to strictly adhere to and comply with the CTA.
Why do I need to report?
Non reporting and failure to file will more than likely result in severe civil and criminal penalties. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure. This may include fines up to $10,000 and up to two years in prison. With up to $500/day potential fines, it is critical you understand what your responsibilities are and where to get help.
Terms To Know
Terms To Know
Beneficial Ownership Information (BOI) Report
The actual report is called the Beneficial Ownership Information (BOI) report – part of the Corporate Transparency Act that Congress passed in 2021 and which establishes uniform reporting requirements for businesses. The BOI lays out in personal detail who owns a business.
An Applicant
This is the individual who directly files, or directs or controls the filing of, the document that creates a domestic reporting company. This may include the individual who files the documents and who directs the individual. There can only be two company applicants. This may include various law firms and companies that set up business entities for their clients.
Beneficial Owners
Any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns and controls at least 25 percent of the ownership interests of such reporting company.
Reporting Company
The business entity that is required to report.
What is a Beneficial Owner?
What is a Beneficial Owner?
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 beneficial owner is an individual who, directly or indirectly, either;
A beneficial owner is an individual who, directly or indirectly, either;
- Exercises substantial control over the reporting company, or
- owns or controls at least 25 percent of its ownership interests.
Who is a not Beneficial Owner?
Who is a not Beneficial Owner?
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A minor child (although the personal information of a parent or guardian must be reported)
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A nominee, intermediary, custodian, or agent of another individual
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An employee acting solely as an employee.
An individual whose only interest in a reporting company is a future interest through a right of inheritance.
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A creditor of the reporting company.
Qualifications of Ownership Interest
Qualifications of Ownership Interest
Equity
This may include ownership of the reporting entity. Forms of stock, membership interest, beneficial interest may qualify as ownership.
Profit
Anyone that may receive a share of the reporting company’s profit.
Miscellaneous and Malicious Contract Arrangements
This encompasses all other creative and or illegal ways of a reporting company subverting the requirements of the CTA.
Indirect joint ownership
A scenario where someone may hold an interest in a reporting company though another entity.
Options
An agreement entitling the holder the right to buy an interest in the company.
Ownership in and through a trust
Owning an interest in a reporting company as a beneficiary in a trust.
Substantial Control as Defined by CTA
Substantial Control as Defined by CTA
FinCEN has not clearly defined the term "Substantial Control".
We interpret that an individual “exercising substantial control” includes the following:
- Senior officers
- People who can appoint and remove senior officers, including the board of directors or similar body, and
- Anyone who directs, determines, or has substantial influence over important decisions made by the company.
“Substantial control” over a reporting company is based on a variety of facts and circumstances, and multiple individuals can have substantial control, all of whom are beneficial owners for purposes of the Act. Reporting companies are required to identify all individuals who exercise substantial control, and there is no limit to the number of individuals who can be reported for exercising substantial control.
What steps can I take to identify my company’s beneficial owners?
What steps can I take to identify my company’s beneficial owners?
Your company can identify beneficial owners by taking the following steps:
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Identify individuals who exercise substantial control over the company. Examples are provided below to help you identify those individuals.
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Identify the types of ownership interests in your company and the individuals that hold those ownership interests. Examples are provided below to help identification. *
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Calculate the percentage of ownership interests held directly or indirectly by individuals to identify individuals who own or control, directly or indirectly, at least 25 percent of the ownership interests of the company.
Not sure if you need to file. Take our 5 minute CTA Quiz.
Not sure if you need to file. Take our 5 minute CTA Quiz.
What do I have to include in the report?
What do I have to include in the report?
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On the Reporting Company
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The full name of the reporting company
and ‘‘doing business as’’ name.
and ‘‘doing business as’’ name.
The business street address of the reporting company.
The State or Tribal jurisdiction of formation where such company first registers.
The IRS Taxpayer Identification Number (TIN) (including an EIN of the reporting company, or where a reporting company has not yet been issued a TIN, one of the following: (1) Dun & Bradstreet Data Universal Numbering System (DUNS) number; or (2) Legal Entity Identifier (LEI).
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On the Beneficial Owners
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Full legal name and date of birth.
The business street address of the reporting company.
Current residential address as used for tax residency purposes.
Unique identification number (from a passport, driver’s license, other state-issued identification, or FinCEN identifier) and the image of the chosen identifier.
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On the Company Applicant
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A company applicant is the individual who files an application to form a corporation, LLC, or other entity formed by filing a document with a state, or who registers or files an application to register a non-U.S. entity in the U.S. (direct filer).
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If more than one individual is involved in the filing of the document, the company applicant is the person who is primarily responsible for directing or controlling the filing.
FAQs
FAQs
Q: Do I have to report to FinCEN every year?
Yes and No. No, you do not have to report annually to FinCEN as a general requirement. Yes, you will be required to report every year if the following occurs within your business:
Q: Are there any shortcuts to make reporting easier?
Yes. API Law can help you apply for a unique FinCEN identifier that can be used in lieu of providing all the information requested by FinCEN on a beneficial owner.
Q: Is this information publicly available?
No. It is not a public database. The data collected by FinCEN will be available to: Q: My Revocable Living Trust owns my LLC. Who is considered a beneficial owner?
If a revocable living trust owns an LLC or different type of business entity, then:
The Trustee must be disclosed,
If trust has just one beneficiary they must be disclosed,
If the trust has more than one beneficiary, then they must be disclosed.
Q: Should I update my operating agreement to comply with FinCEN?
No. But API strongly suggests that if your LLC has other members other than your spouse, the LLC operating agreement be amended to contain provisions forcing members to adhere with any reporting requirements under the CTA.
Q: What type of language should I include in my LLC operating agreement to comply with the CTA
Your operating agreement should include mutual indemnifications for failure to comply by a member. Who controls disclosure in the event the members disagree. What are the remedies for the LLC and other members if a member refuses to comply. API Law has prepared language for all its LLCs addressing these and other concerns raised by the CTA.
Q: Can I use bearer shares or membership interests to avoid reporting?
No. The CTA includes a provision prohibiting the issuance of bearer shares or certificates.
Q: If I shut down my company, do I need to notify FinCEN?
FinCEN has not made a ruling regarding this issue.
Q: If I fail to report or submit false information what happens?
“It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent ownership information to FinCEN, or willfully fail to report complete or updated beneficial ownership information to FinCEN. Any person violating the reporting requirements of the Corporate Transparency Act is liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000. 31 U.S.C. § 5336(h)(3)(A).”
Q: Can I qualify for the inactive entity exemption?
An entity qualifies for this exemption if all six of the following criteria apply:
Yes and No. No, you do not have to report annually to FinCEN as a general requirement. Yes, you will be required to report every year if the following occurs within your business:
- A change in beneficial owners, such as a new CEO, or a sale that changes who meets the ownership interest threshold of 25 percent.
- Any change to a beneficial owner’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.
- Any change to the information reported for the reporting company, such as registering a new business name.
Q: Are there any shortcuts to make reporting easier?
Yes. API Law can help you apply for a unique FinCEN identifier that can be used in lieu of providing all the information requested by FinCEN on a beneficial owner.
Q: Is this information publicly available?
No. It is not a public database. The data collected by FinCEN will be available to:
- Federal agencies engaged in national security, intelligence, and law enforcement.
- State, local, and Tribal law enforcement agencies with a court order
The Treasury Department
- Financial institutions – with the company’s consent, for customer due diligence purposes
- Government regulators of financial institutions to determine the compliance with customer due diligence laws.
- Certain foreign authorities requesting information through a U.S. agency.
If a revocable living trust owns an LLC or different type of business entity, then:
The Trustee must be disclosed,
If trust has just one beneficiary they must be disclosed,
If the trust has more than one beneficiary, then they must be disclosed.
Q: Should I update my operating agreement to comply with FinCEN?
No. But API strongly suggests that if your LLC has other members other than your spouse, the LLC operating agreement be amended to contain provisions forcing members to adhere with any reporting requirements under the CTA.
Q: What type of language should I include in my LLC operating agreement to comply with the CTA
Your operating agreement should include mutual indemnifications for failure to comply by a member. Who controls disclosure in the event the members disagree. What are the remedies for the LLC and other members if a member refuses to comply. API Law has prepared language for all its LLCs addressing these and other concerns raised by the CTA.
Q: Can I use bearer shares or membership interests to avoid reporting?
No. The CTA includes a provision prohibiting the issuance of bearer shares or certificates.
Q: If I shut down my company, do I need to notify FinCEN?
FinCEN has not made a ruling regarding this issue.
Q: If I fail to report or submit false information what happens?
“It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent ownership information to FinCEN, or willfully fail to report complete or updated beneficial ownership information to FinCEN. Any person violating the reporting requirements of the Corporate Transparency Act is liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000. 31 U.S.C. § 5336(h)(3)(A).”
Q: Can I qualify for the inactive entity exemption?
An entity qualifies for this exemption if all six of the following criteria apply:
- The entity was in existence on or before January 1, 2020.
- Is not engaged in active business.
- Is not owned by a “foreign person” as defined in the Act, whether directly or indirectly, wholly, or partially.
- Has not experienced any change in ownership in the preceding twelve-month period.
- Has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period; and
- Does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
Not sure if you need to file. Take our 5 minute CTA Quiz.
Not sure if you need to file. Take our 5 minute CTA Quiz.
Use API Law's Beneficial Ownership Platform for fast and accurate BOI filings
Use API Law's Beneficial Ownership Platform for fast and accurate BOI filings
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Reduce confusion using our guided five-step filing process
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The fast and automated filing process saves hours on each filing
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File your Beneficial Ownership Information reports in 2024
File your Beneficial Ownership Information reports in 2024
An initial filing is required during 2024—as well as updates every time company or owner information changes—or face harsh civil and criminal penalties for non-compliance.
Scenarios *
Scenarios *
My company only has a bank/savings/brokerage account - You must report. The LLC falls within the CTA’s definition of a reporting company because it holds assets.
My company does not hold any assets - It depends. If your LLC has not conducted any business activity or held assets for over 1 year it is considered dormant and not required to report
My company is owned 76% by my minor children and 24% by me - It depends. If your LLC has not conducted any business activity or held assets for over 1 year it is considered dormant and not required to report
My company was dissolved in year X. Is it required to report the following year? - Under current regulations the answer is yes because the company held assets or conducted business activity within the past year and does not fall under exemption #23. The company will not have to report in subsequent years.
I own less than 25% of a company but serve as its manager - Yes, you will be required to report as a beneficiary owner because you have substantial control over the company as its manager.
I loaned money to a company and the terms of the note allow me to convert the debt to equity - Yes, you are required to report as a beneficial owner of the company-borrower because your note is convertible to equity.
My IRA is a member is a greater than 25% member in an LLC - Yes, the LLC is a reporting company and must report. Also, the IRA is the beneficial owner and as such must report on the owner of the IRA because the IRA owner has “Substantial Control” over the IRA. The IRA does not fall under the non-profit exemption.
I have 5 companies that each hold a 20% interest in an LLC - The LLC is required to report, and you will be required to report as the beneficial owner because your aggregate ownership interests between the companies equals 100%
My wife and I are the managers and members of an LLC - The LLC is required to report, and you and your wife will be required to report as beneficial owners because your interest is greater than 25%.
I am the manager, and my wife is a 100% member of our LLC - Your LLC is required to report and you as the manager will report as a beneficial owner (substantial control) as will your wife (greater than 25% ownership).
My company does not hold any assets - It depends. If your LLC has not conducted any business activity or held assets for over 1 year it is considered dormant and not required to report
My company is owned 76% by my minor children and 24% by me - It depends. If your LLC has not conducted any business activity or held assets for over 1 year it is considered dormant and not required to report
My company was dissolved in year X. Is it required to report the following year? - Under current regulations the answer is yes because the company held assets or conducted business activity within the past year and does not fall under exemption #23. The company will not have to report in subsequent years.
I own less than 25% of a company but serve as its manager - Yes, you will be required to report as a beneficiary owner because you have substantial control over the company as its manager.
I loaned money to a company and the terms of the note allow me to convert the debt to equity - Yes, you are required to report as a beneficial owner of the company-borrower because your note is convertible to equity.
My IRA is a member is a greater than 25% member in an LLC - Yes, the LLC is a reporting company and must report. Also, the IRA is the beneficial owner and as such must report on the owner of the IRA because the IRA owner has “Substantial Control” over the IRA. The IRA does not fall under the non-profit exemption.
I have 5 companies that each hold a 20% interest in an LLC - The LLC is required to report, and you will be required to report as the beneficial owner because your aggregate ownership interests between the companies equals 100%
My wife and I are the managers and members of an LLC - The LLC is required to report, and you and your wife will be required to report as beneficial owners because your interest is greater than 25%.
I am the manager, and my wife is a 100% member of our LLC - Your LLC is required to report and you as the manager will report as a beneficial owner (substantial control) as will your wife (greater than 25% ownership).
Trusts
Trusts
My company is the beneficiary of a land trust that holds real estate - The land trust does not report, but the company must report because the land trust is considered an asset.
My company is owned by my joint living trust with my spouse - Yes, your company must report, and you must report on you and your spouse as both the trustees and beneficiaries of your living trusts (beneficial owners).
My Solo 401k is a member is a greater than 25% member in an LLC - Yes, the LLC is a reporting company and must report. Also, the solo 401k is the beneficial owner and as such must report on the trustee of the solo 401k and the 401k participant. The solo 401k does not fall under the non-profit exemption.
My company is owned by my joint living trust with my spouse - Yes, your company must report, and you must report on you and your spouse as both the trustees and beneficiaries of your living trusts (beneficial owners).
My Solo 401k is a member is a greater than 25% member in an LLC - Yes, the LLC is a reporting company and must report. Also, the solo 401k is the beneficial owner and as such must report on the trustee of the solo 401k and the 401k participant. The solo 401k does not fall under the non-profit exemption.
Non-Profits
Non-Profits
My non-profit - Your non-profit falls under exemption #19 and is not required to report.
My non-profit owns 100% of an LLC - The LLC falls under the subsidiary exemption of #22 and is not required to report.
My non-profit owns less than 100% of an LLC - The LLC does not meet the subsidiary exemption of #22 and therefore must report. The beneficial owner, however, needs only list your non-profit and not any of its directors.
My non-profit owns 100% of an LLC - The LLC falls under the subsidiary exemption of #22 and is not required to report.
My non-profit owns less than 100% of an LLC - The LLC does not meet the subsidiary exemption of #22 and therefore must report. The beneficial owner, however, needs only list your non-profit and not any of its directors.
Not sure if you need to file. Take our 5 minute CTA Quiz.
Not sure if you need to file. Take our 5 minute CTA Quiz.
What are the 23 exemptions listed by FinCEN?
What are the 23 exemptions listed by FinCEN?
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Bank
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Credit union
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Accounting firm
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Tax-exempt entities
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Large operating company
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Governmental authorities
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Broker or dealer in securities
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State-licensed insurance producers
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Depository institution holding company
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Securities exchange or clearing agency.
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Commodity Exchange Act registered entity
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Public Utility
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Inactive entity
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Insurance company
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Financial market utility
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Money services business
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Securities reporting issuer
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Pooled investment vehicles
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Venture capital fund adviser
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Entity assisting a tax-exempt entity
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Subsidiary of certain exempt entities
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Other Exchange Act registered entity
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Investment company or investment adviser
Put Beneficial Ownership Reporting on Autopilot
Put Beneficial Ownership Reporting on Autopilot
API Law's full-service support is the easiest way to stay ahead of the new requirements. Sign up today and experience:
- Simple, secure online information collection
- Centralized data storage that streamlines information tracking and updates
- Automated notifications to keep you up to date on ongoing filing requirements
- Filing support for initial, update, and correction reports
The result is you spend more time focused on your core business operations and less time worrying about government filing requirements.
- Simple, secure online information collection
- Centralized data storage that streamlines information tracking and updates
- Automated notifications to keep you up to date on ongoing filing requirements
- Filing support for initial, update, and correction reports
The result is you spend more time focused on your core business operations and less time worrying about government filing requirements.
Don't wait, get started now.
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Copyright © 2024 API Law and its parent, subsidiaries, affiliates, and agents (collectively, “API.Law”, "we", "our", or "us"), is a full-service licensed law firm. All rights reserved. API Law is a full-service law firm. The information on this website is for general information purposes only. Nothing on this website should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. A formal attorney-client relationship is created when an engagement letter is signed.
The information contained on this page is intended to help small entities comply with the beneficial ownership information reporting rule promulgated by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). * This page is explanatory only and does not supplement or modify any obligations imposed by statute or regulation. Additionally, this page does not supersede more recent guidance documents issued by FinCEN. For additional information, consult The Reporting Rule, which implements Section 6403 of the Corporate Transparency Act. The rule describes who must file a BOI report, what information they must provide, and when they must file the reports. The Reporting Rule is found at 1010.380 in title 31 of the Code of Federal Regulations (CFR).
The information contained on this page is intended to help small entities comply with the beneficial ownership information reporting rule promulgated by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). * This page is explanatory only and does not supplement or modify any obligations imposed by statute or regulation. Additionally, this page does not supersede more recent guidance documents issued by FinCEN. For additional information, consult The Reporting Rule, which implements Section 6403 of the Corporate Transparency Act. The rule describes who must file a BOI report, what information they must provide, and when they must file the reports. The Reporting Rule is found at 1010.380 in title 31 of the Code of Federal Regulations (CFR).