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10 Key Facts About the Corporate Transparency Act 

Corporate Transparency Act

The Corporate Transparency Act is a new federal law formed under the National Defense Authorization Act that establishes disclosure requirements for millions of companies in the United States and abroad. As the U.S. Treasury Department explained in a Press Release in late 2023, the Corporate Transparency Act, “requires many companies formed or operating in the United States to report information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN), which will store this sensitive information in a secure, confidential database.”

This makes the Corporate Transparency Act unique. Aside from the obligation to file federal tax returns, there really aren’t any federal corporate filing obligations that are as broad in scope. But, despite the Corporate Transparency Act’s unique nature—and the fact that it still remains relatively unknown—non-compliance can lead to steep penalties.

Here’s What You Need to Know About the Corporate Transparency Act

So, what do you need to know about the Corporate Transparency Act? Here are 10 key facts for business owners and executives:

1. The Corporate Transparency Act Became Effective on January 1, 2024

While Congress passed the Corporate Transparency Act in 2021, it only became effective on January 1, 2024. The reason for this delay was to allow FinCEN sufficient time to establish the framework and technological infrastructure needed to implement the statute’s disclosure requirements. Now that the Corporate Transparency Act is in effect, virtually all businesses domiciled or operating in the United States must determine if they need to comply.

2. The Corporate Transparency Act Applies to Most Companies Doing Business in the United States

The Corporate Transparency Act is extremely broad in scope. The statute applies to “reporting companies,” which it defines a reporting company as a, “corporation, limited liability company, or other similar entity that is—(i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or, (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.” The statute then goes on to identify companies that are exempt from reporting—which we discuss in greater detail below.

3. The Corporate Transparency Act Has Rolling Compliance Dates (and Some Companies Must Comply Immediately)

While the Corporate Transparency Act is effective as of January 1, 2024, it has rolling compliance deadlines for companies in varying scenarios. The three main scenarios are:

  • Companies Formed or Registered to Do Business in the U.S. Before January 1, 2024: The initial Beneficial Ownership Information (BOI) report (discussed below) is due no later than January 1, 2025. 
  • Companies Formed or Registered to Do Business in the U.S. During 2024: The initial BOI report is due within 90 calendar days of formation or registration. 
  • Companies Formed or Registered to Do Business in the U.S. in 2025 or Later: The initial BOI report is due within 30 calendar days of formation or registration.

Additionally, as the U.S. Chamber of Commerce explains, complying with the Corporate Transparency Act is not necessarily a one-time event. “Though no annual reporting requirement has been set, the initial filing period is not the only time you’ll be required to submit information . . . . ‘In addition to the required initial filing, there are requirements to update the original filing when things change . . . . Some of the things that require an updated filing are not things a business owner has ever thought were important to track, and the timeline to report these changes can be as short as 30 days.'”

4. There Are Exemptions Under the Corporate Transparency Act, But They Are Narrow

As mentioned above, there are exceptions to the Corporate Transparency Act’s reporting requirement. Specifically, entities that are not classified as “reporting companies” under the statute include:

  • Securities issuers and other entities registered under the Securities Exchange Act of 1934
  • Banks, credit unions, and savings and loan holding companies
  • Registered money transmitting businesses
  • Investment companies registered with (or required to file reports with) the U.S. Securities and Exchange Commission (SEC) 
  • Certain entities registered with the Commodity Futures Trading Commission (CFTC)
  • Public accounting firms registered under the Sarbanes-Oxley Act of 2002
  • Insurance companies (as defined in the Investment Company Act of 1940) and other insurance producers authorized to do business in the United States
  • Public utilities and financial market utilities
  • Pooled investment vehicles
  • Tax-exempt 501(c) organizations and certain entities that operate exclusively to assist these organizations
  • Entities that exercise governmental authority on behalf of the United States, a state, or a political subdivision
  • Entities that have 20 or more full-time employees and a physical office in the United States, and that filed a federal tax return in the previous year showing more than $5 million in gross revenue
  • Subsidiaries of any of the entities listed above 
  • Companies that have been in existence for more than a year but have not engaged in active business, that are not owned, directly or indirectly, by a foreign person, and that meet certain other requirements 
  • Any other entities exempted by U.S. Treasury Department regulations

As you can see, while there are several exceptions and are not required to report beneficial ownership information, all of these exceptions are fairly narrow. As a result, numerous companies, including small businesses with less than 20 full-time employees or less than $5 million in annual revenue, must ensure that they comply with the law and beneficial ownership information reporting.

5. Compliance with the Corporate Transparency Act Involves Filing a Beneficial Ownership Information (BOI) Report with FinCEN

Complying with the Corporate Transparency Act involves filing a Beneficial Ownership Information (BOI) report with FinCEN. The statute defines a “beneficial owner” as any “individual who, directly or indirectly . . . (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” Exceptions include minor children (if the child’s parent or guardian is reported), nominees, intermediaries, custodians, agents, individuals acting solely as an employee, individuals whose only interest is through a right of inheritance, and creditors (unless a creditor exercises substantial control). Here, too, the exceptions to the BOI filing requirement are limited, and they will not apply in most circumstances.

6. Companies Must Ensure That They File All Required BOI Reports for Their Beneficial Owners

If a company that is subject to the Corporate Transparency Act has more than one reportable beneficial owner, it must file Beneficial Ownership Reports for each owner. If a new beneficial owner joins the company after it has filed its initial BOI report (or reports), the company must file an additional BOI report for the new owner. Likewise, if a beneficial owner’s reported information changes, the company must file an updated BOI report in this scenario as well.

7. Companies Must Fully (and Accurately) Complete All Required BOI Reports

When filing their BOI reports with FinCEN, companies must ensure that their reports are timely, accurate, and complete. Under the Corporate Transparency Act, the information that must be contained within a BOI report includes the beneficial owner’s:

  • Full legal name
  • Date of birth 
  • Current residential or business address (not a P.O. box)
  • Social Security number, passport number, driver’s license number, or other government-issued identification number 

Omitting or misstating any required piece of information can lead to a determination of non-compliance; and, as discussed below, the consequences of failing to fully comply with the Corporate Transparency Act’s reporting requirements can be substantial.

8. The U.S. Treasury Department is Taking Corporate Transparency Act Compliance Seriously

The U.S. Treasury Department intends to use the Corporate Transparency Act to uncover shell companies and to, “disrupt [the] financial anonymity that enables crimes such as corruption, drug trafficking, and terrorism.” As a result, it is taking Corporate Transparency Act compliance seriously, and it has made clear that it intends to hold companies and their owners accountable for non-compliance.

9. The Penalties for Non-Compliance with the Corporate Transparency Act Can Be Substantial

Non-compliance with the Corporate Transparency Act can lead to substantial penalties. In civil enforcement cases, the U.S. Treasury Department can impose fines of $500 for each day that a violation continues. In criminal enforcement cases, business owners can face up to a $10,000 fine and two years of federal imprisonment.

10. Companies Need to Prioritize Corporate Transparency Act Compliance in 2024 (and Beyond)

With these risks in mind, companies need to prioritize Corporate Transparency Act compliance going forward. All existing companies should work with their corporate compliance counsel to assess their reporting obligations, and newly established companies will need to assess their compliance obligations when going through the formation process. All companies will need to keep Corporate Transparency Act compliance in mind in the future as well, as bringing on new owners and other events may trigger additional reporting requirements.

Schedule an Appointment with a Federal Corporate Compliance Lawyer at Oberheiden P.C.

Do you have questions or concerns about Corporate Transparency Act compliance? If so, we invite you to get in touch. To schedule an appointment with a federal corporate compliance lawyer at Oberheiden P.C., please call 888-680-1745 or request a complimentary consultation online today.

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