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The Corporate Transparency Act – What Does it Mean for Your Small Business?

The Corporate Transparency Act was enacted in 2021 to help combat money laundering by increasing transparency, specifically by requiring business entities to report information about its beneficial owners to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). FinCEN recently issued a final rule that describes who must file a beneficial ownership report (BOI report), what information needs to be reported, and when the report is due. The effective date of the final rule is January 1, 2024.

The rule requires existing “reporting companies” to report certain information about the reporting company and its “beneficial owners” by January 1, 2025. FinCEN estimates that a majority of the 32 million companies estimated to fall under the rule will be small businesses, single-owner LLCs, or other types of reporting companies with four or fewer beneficial owners.  So, what is considered a reporting company and who are considered beneficial owners?

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A domestic reporting company is any corporation, limited liability company, or any other entity created by filing a document with a secretary of state or similar state or tribal office. A foreign reporting company is any corporation, limited liability company, or any other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or similar office.  Twenty-three categories of entities are exempt from reporting, and they include large operating companies, defined as companies with 20 or more full-time U.S. employees, more than $5 million in U.S. sourced revenue, and a physical operating presence in the U.S., banks and credit unions, insurance companies, and accounting forms, to name a few. 

Beneficial owners are defined as any individual who either exercises substantial control over the reporting company or owns at least 25% of the ownership interests of the reporting company. The information that must be reported about beneficial owners is their full legal name, date of birth, current address, unique identifying number from an unexpired passport or driver’s license, and an image of the document from which the identifying number is obtained. Someone is deemed to have substantial control of a reporting company if the individual is a senior officer; has authority over the removal and appointment of senior officers or the majority of the board of directors; directs, determines or has substantial influence over important decisions of the company; or has any other form of substantial control.


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Posted in Senior Law News