The Corporate Transparency Act (the “CTA”) has been in place since 2020 when it was passed as part of the National Defense Authorization Act for Fiscal Year 2021; however, after a long administrative rulemaking process, the Beneficial Ownership Information (“BOI”) reporting requirements have only recently been finalized and will first become effective on January 1, 2024 (the “Effective date”). 

The CTA was enacted in response to the vast and increasing use of corporate entities and shell-companies by bad actors looking to conceal their illicit activities.  To improve transparency, as the name suggests, the statute requires all entities to file a BOI report unless they fall under one of 24 exemptions.  The exemptions are meant to apply in situations where the threat of unscrupulous behavior underlying the CTA is diminished, such as when the entity is already regulated under a separate statutory scheme, or has characteristics evidencing real operations such as physical domestic offices, 20 or more employees, etc.   (See 31 U.S.C. § 5336(a)(11)(B)(i)-(xxiv) for a full list of exemptions).

As of the Effective Date, and unless covered by an exemption, pre-existing companies will have one year (until January 1, 2025) to file their BOI report, and new companies formed after the Effective Date will be required to file a report within thirty (30) days of the entity’s incorporation, organization, etc.  The report must include certain entity information, beneficial owner information, and “applicant” information. See below.  A beneficial owner under the CTA is anyone who exerts substantial control over the reporting company, or who owns 25 percent or more of the ownership interests in the company.  Furthermore, “substantial control” is defined in the regulations as directing, determining, or having substantial influence over important decisions made by the reporting company.  See 31 C.F.R. § 1010.380(d).  The regulations give three specific but non-exhaustive indicators of “substantial control”:

  1. Service as a senior officer;
  2. authority over the removal of any senior officer or a majority of the board of directors; and
  3. the direction, determination, decision of, or substantial influence over, important matters of the company.  See 31 C.F.R. § 1010.380(d)(1).

The required beneficial owner information includes, for each beneficial owner:

  1. Their full legal name;
  2. date of birth;
  3. a complete and current residential address;
  4. a unique identification number from the list of acceptable items (see 31 U.S.C. § 5336(a)(1); 31 C.F.R. § 1010.380(b)(1)(ii)) including the jurisdiction that issued the identification document; and
  5. an image of the identification document.

The required entity information includes:

  1. The entity’s full legal name;
  2. any and all trade names or “doing business as” names;
  3. a complete and current address for the entity’s principal place of business;
  4. its jurisdiction of formation; and
  5. its taxpayer identification number. 

The “applicant” is the individual who files the required formation documents to create the entity, such as the incorporator, organizer, etc.  The required applicant information is the same as that required for a beneficial owner, except the address should be the address for the company’s principal place of business, not the applicant’s residence.  Companies existing before the Effective Date do not need to include any applicant information.

It is critical for each entity, new or existing, to begin contemplating this required report and gathering information so that they can be prepared to file it promptly.  Violators are subject to civil penalties of up to 500 dollars per day that the violation continues, and criminal penalties of up to two years imprisonment.  31 U.S.C. § 5336(h)(3)