Corporate Transparency Act & Beneficial Ownership Information Reporting Guide

MPL Law Firm is committed to supporting the needs of all of our clients. The information landscape regarding the Corporate Transparency Act and FinCEN’s Beneficial Ownership Information reporting requirements is complex and evolving.

Our firm has compiled this information as a resource to assist business clients with understanding how this law impacts their business and address commonly asked questions. The firm will maintain and update this resource with any additional guidance or information as it is released.

If you have a question as it pertains to BOI reporting that is not covered here, please contact our firm at: https://mpl-law.com/contact/

Understanding the Corporate Transparency Act (CTA)

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a U.S. law that was passed in 2021 and became effective on January 1, 2024. The law requires more than 30 million privately-held companies to register with the federal government and disclose certain information about themselves, their owners and their management.

It applies to companies formed in the U.S. as well as companies formed outside the U.S. and registered to do business in the U.S. There are significant civil and criminal penalties on companies, senior management and owners who fail to comply with the CTA.

What is the Beneficial Ownership Information (BOI) Rule?

The CTA is administered by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). FinCEN has published rules implementing the CTA (the Rules). The Rules require certain corporations, limited liability companies, and other similar entities to disclose specific identifying information about two categories of individuals:

1. The beneficial owners who own or control such entities.
2. The company applicants who form or register them.

FinCEN will use the information to maintain a database available to law enforcement authorities and financial institutions.

Decoding Beneficial Ownership Information (BOI) Reporting

Who Must File Beneficial Ownership Reports to FinCEN?

The CTA requires domestic and foreign companies within the scope of the CTA’s definition of “reporting company” to file a report with FinCEN, unless they fall within one of 23 exemptions. Reporting companies are all domestic corporations, limited liability companies, limited partnerships and any other entities created by the filing of a document with a secretary of state or any similar office under the laws of a state or an Indian tribe.

It should be clear that most small businesses are reporting companies that must comply with the CTA, unless they satisfy the requirements of a large operating company.

Exemptions from BOI Reporting

The CTA expressly exempts 23 categories of companies from the requirement of filing reports, but these companies are primarily larger, highly regulated, or subject to different ownership reporting requirements. The following is the full list of exemptions:

• Depository institution holding company
• Money services business
• Broker or dealer in securities
• Securities exchange or clearing agency
• Other Exchange Act registered entity
• Investment company or investment adviser
• Venture capital fund adviser
• Insurance company and insurance producer
• State-licensed insurance producer
• Commodity Exchange Act registered entity
• Accounting firm
• Public utility
• Financial market utility
• Pooled investment vehicle
• Tax-exempt entity
• Entity assisting a tax-exempt entity
• Large operating company
• Subsidiary of certain exempt entities
• Inactive entity

Of these exemptions, the more common are the large operating company, the subsidiary of certain exempt entities, and an inactive entity, and are defined below.

Large Operating Company

A large operating company is one that meets each of the following requirements:

1. Employs more than 20 full-time employees in the U.S. who work for 30 or more hours per week and are employed by the company (not a parent or subsidiary company)
2. Has a physical location in the U.S.
3. Has filed a federal income tax or information return for the previous year showing more than $5 million in gross receipts or sales.

Subsidiary of Certain Exempt Companies

This company is a subsidiary controlled or wholly-owned, directly or indirectly, by one or more exempt companies.

Inactive entity

An inactive entity in existence on or before January 1, 2020 that has no foreign owners, no assets (including interests in other entities), no change in ownership during the last 12 months, and has not sent or received funds in excess of $1,000 in the last 12 months.

BOI Storage and Access

FinCEN will store BOI in a secure nonpublic database – the Beneficial Ownership Secure System (BOSS). The general public will not have access to BOI. It will remain confidential and cannot be used or disclosed except as authorized in the CTA and its regulations.

Under the CTA, FinCEN is authorized to disclose BOI only in limited circumstances on receipt of a request from the following entities:

• U.S. federal agencies engaged in national security, intelligence, or law enforcement activities, for use in furtherance of those activities
• A state, local, or tribal law enforcement agency, with a court’s authorization to seek the information in a criminal or civil investigation
• A federal agency on behalf of non-U.S. law enforcement or a foreign prosecutor or judge
• A financial institution subject to customer due diligence requirements, with the consent of the reporting company, to facilitate the financial institution’s compliance with customer due diligence requirements
• Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations
• Officers and employees of the U.S. Treasury Department for tax administration purposes

BOI Reporting Requirements

The BOI’s reporting requirements cover three categories: the reporting company, the beneficial owners, and the company applicants.

Required Company Information

Business information that provides context into the company’s legal operation is required as part of the BOI report filed with FinCEN, and includes:

1. The business’s full legal name
2. Any trade names, doing business as (DBA), or trading as (t/a) names, whether or not they are formally registered
3. The business’ principal place of business in the U.S. if it is a domestic company. Foreign companies registered to do business in the U.S. must provide the street address of its primary location in the U.S. where it conducts business. To be clear, a post office box or an agent’s address cannot be used.
4. The business’ jurisdiction of formation if it is a domestic company. Foreign companies registered to do business in the U.S. must provide the jurisdiction in the U.S. where they first registered to do business
5. The business’ IRS Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN).

Required Beneficial Owner and Company Applicant Information

FinCEN requires the same information for both beneficial owners as well as company applicants:

1. Full legal name
2. Date of birth
3. Current business or residence address
4. Unique identifying number from a non-expired (a) U.S. Passport, (b) driver’s license, or (c) identification document issued by a state or local government or Indian tribe.
5. An image of the identification document from which the unique identifying number was obtained.

If an individual does not have any of the foregoing identification documents, a passport issued by a foreign government may be used.

Who Is Considered a Beneficial Owner?

The reporting requirements define a beneficial owner as any individual (i.e., natural person), who, directly or indirectly, either:

• exercises substantial control over the reporting company, or
• owns or controls 25% or more of the ownership interests of the reporting company.

A reporting company must have at least one beneficial owner.

Who is Considered a Company Applicant?

Important update regarding company applicants: A reporting company formed or registered on or after January 1, 2024 must also identify any “company applicant”. A reporting company created or registered before January 1, 2024 is not required to report company applicants. The Rules provide that a reporting company should limit its company applicants to at most two individuals.

There are two categories of company applicants – the “direct filer” and the individual who “directs or controls the filing action”.

A direct filer must be identified by a reporting company. A direct filer is the person who directly files the document forming a domestic company or registering a foreign company to do business in the U.S.

In circumstances where a reporting company was formed by a business formation service, such as CSC or CT, its employees would not be company applicants. If a reporting company was formed by a law firm or an accounting firm, the person directly filing the document would be a company applicant and the person who prepared the document or who was supervising such a person would also be a company applicant.

For example, an attorney who prepared the certificate and the legal assistant or paralegal who directly filed it would be company applicants.

When Must the BOI Report be Filed?

A company created or registered on or after January 1, 2024 must file an initial beneficial ownership information report (“BOI Report”) within 90 days after receiving notice that the company has been formed or registered.

A company created or registered before January 1, 2024 must file an initial BOI Report before January 1, 2025.

A company created or registered on or after January 1, 2025 must file an initial BOI Report within 30 days after receiving notice that the company has been formed or registered.

Please note: under the CTA, it is the reporting company that is responsible for filing the BOI Report. It is not the responsibility of the beneficial owners, the company applicants, or the reporting company’s attorneys or accountants.

Where to File the BOI Report

Reporting companies have two options for filing reports with FinCEN. They can either file directly through FinCEN’s secure filing system FINCEN BOI or use a third-party service provider to do so, such as CT Corporation, Corporation Service Company, Cogency, or Registered Agent Solutions Inc.

Further instructions and technical guidance on how to complete the BOI Report form will be available at www.fincen.gov/boi .

Consequences for Failure to Comply with BOI Reporting Requirements

The CTA provides for significant civil and criminal penalties for reporting violations and unauthorized disclosure or use of reported BOI. Reporting violations include:

1. Willfully failing to report BOI to FinCEN.
2. Willfully providing false or fraudulent BOI to FinCEN
3. Willfully failing to update BOI.

These penalties may apply to the reporting company, senior officers of the reporting company at the time of its failure to fulfill its obligation to report or update BOI, and any individual who causes a reporting company not to report.

The civil penalty for failure to comply is not more than $500 (adjusted annually for inflation per the CTA) for each day that the violation continues or has not been remedied. The criminal penalties are fines of not more than $10,000, imprisonment for not more than two years, or both.

MPL Is Here to Support You

MPL Law Firm, LLP is ready to assist its clients with their analysis of their obligations under the CTA. Unless expressly agreed otherwise, clients will remain responsible for filing any required reports with FinCEN, either directly or through a third-party vendor, such as CT, CSC, Cogency, or RASi.

If you have any questions about the Corporate Transparency Act, please contact our firm at 717-845-1524 or on our “Contact Us” page.