On January 1, 2024, the Corporate Transparency Act (“CTA”) went into effect. According to the CTA, domestic and foreign entities registered to do business in the United States will need to comply with new beneficial ownership reporting requirements imposed under the CTA. This Beneficial Ownership Rule, also known as “BOI”, will affect most business owners. It is important that business owners stay informed and compliant with the Beneficial Ownership Rule. In this article, we’ll break down key aspects of the rule and its implications for business owners.
Understanding the Reporting Obligations:
The Beneficial Ownership Rule mandates reporting for certain types of companies, classified as domestic reporting companies, foreign reporting companies, non-reporting companies, and exempt companies. Business owners need to determine their company’s classification to ascertain reporting obligations accurately.
Identifying Beneficial Owners:
For reporting companies, identifying Beneficial Owners is a critical step. A “Beneficial Owner” is an individual who owns or controls at least 25 percent of the ownership interest or exercises substantial control over the company. Ownership interests encompass various aspects such as equity, stock, or voting rights. Exemptions exist for minors, nominees, intermediaries, custodians, agents, employees, inheritors, and creditors. A list of all exemptions can be found in the Small Entity Compliance Guide on the Financial Crimes Enforcement Network’s (“FinCEN”) website.
Determining Company Applicants Reporting Requirement:
Business entities (corporations, limited liability companies, and limited partnerships) created or registered as domestic or foreign reporting companies on or after January 1, 2024, are required to report Company Applicants. However, those created or registered before January 1, 2024, are only obligated to report Beneficial Owners and not Company Applicants. “Company Applicants” are the individuals responsible for filing, or the individuals who were responsible for directing the filing of creation or registration documents with the appropriate state or tribal agency (i.e., Arizona Corporation Commission, Secretary of State, etc.).
Specific Information Required for Reporting:
Business owners must furnish detailed information about the company, including legal name, trade name, complete U.S. address, state or foreign jurisdiction of first registration, and taxpayer identification numbers. Beneficial Owners and Company Applicants’ information should include names, dates of birth, addresses, and identification numbers from valid documents.
Filing the Initial Report:
The reporting requirement became effective on January 1, 2024. Existing reporting companies (created before January 1, 2024) must file their initial reports by January 1, 2025, while new reporting companies (created on or after January 1, 2024) must file their initial reports within 90 calendar days. Beginning in 2025, new reporting companies created after January 1, 2025, will be required to file their initial report within 30 calendar days of creation. Filing is done electronically through a secure system managed by FinCEN.
Handling Changes and Inaccuracies:
Business owners must be proactive in updating reported information that has changed after the initial filing. Updated reports are required to be filed within 30 calendar days after changes to company or beneficial owner information. Corrected reports are necessary when there are inaccuracies in the company BOI filing and must be filed within 30 calendar days of awareness.
As business owners navigate the intricacies of the Beneficial Ownership Rule, staying informed and compliant is paramount. Understanding reporting obligations and identifying Beneficial Owners are key steps in ensuring a smooth and legally sound process. By adhering to deadlines and promptly addressing changes or inaccuracies, business owners can confidently meet their obligations under this regulatory framework.