February 13, 2024

2-2-2024 Navigating Transparency: Understanding the Corporate Transparency Act and Its Implications for Businesses

The Corporate Transparency Act, a new federal law that is effective as of January 1, 2024, requires certain small business companies formed or registered in the U.S. to report information about the company and the people who own or control it (“Beneficial Owners”). For companies formed or registered on or after January 1, 2024, information about the person(s) who formed or registered those companies (“Company Applicants”) must also be reported. This information must be filed in a Beneficial Ownership Information Report (“BOI Report”) with the U.S. Treasury Department’s Financial Crimes Enforcement Division (FinCEN). The purpose of this reporting is to prevent criminals from using anonymous corporate shells for money laundering, tax evasion, fraud and other crimes.

Who must File?

A legal entity is subject to reporting as a “Reporting Company” if it (a) is formed or registered to do business in the U.S. and (b) came into existence as a result of a legal filing. Corporations (including S-corporations), limited liability companies (LLCs) and other entities formed through a secretary of state will be considered Reporting Companies. For example, a U.S. LLC with one owner is subject to reporting because a certificate is filed with a secretary of state to form that entity, but a U.S. sole proprietorship or general partnership is not because no filing is necessary to form that entity. We anticipate that most of our clients will need to file a BOI Report per Reporting Company.

Some companies are exempt from the requirement to file BOI Reports. These exempt companies are typically already regulated or large companies. For example, public companies, banks and credit unions, certain tax-exempt entities, public utilities and larger companies that meet specific parameters are exempt. These parameters for large companies include (a) over 20 US full-time employees, (b) a physical operating presence at an office in the U.S., and (c) more than $5,000,000 in U.S. gross receipts reported on the prior year’s tax return (All conditions must be met). Specific rules apply so please consult your Woods Oviatt Gilman LLP attorney to assist in determining whether an exemption applies to your entity.

What information is required for the BOI Report?

A Reporting Company must report its:

  • Legal name and any trade name or DBA;
  • Address;
  • Jurisdiction of formation (state, tribal or foreign);
  • Jurisdiction in which it was first registered (if foreign); and
  • Taxpayer identification number.

A Reporting Company must report the following about its Beneficial Owners and, for Reporting Companies formed or registered on or after January 1, 2024, Company Applicants:

  • Legal name;
  • Birthdate;
  • Address;
  • Identifying number from a non-expired passport or state ID (such as a driver’s license) or other approved document; and
  • A picture of the identifying document.

Who is a Beneficial Owner?

Two types of individuals can be Beneficial Owners based on ownership or control and a Reporting Company can have multiple Beneficial Owners. A Beneficial Owner is any person who directly or indirectly (a) exercises substantial control over the Reporting Company, or (b) who owns or controls at least 25% of the Reporting Company. The definition is very broad. For example, a Beneficial Owner includes, not just an owner of 25% or more of the equity of the Reporting Company, but also a senior officer in title or function, including a company’s CEO, CFO, COO and general counsel, or someone with authority to control major decisions, regardless of title or equity ownership in the Reporting Company. To be clear, an individual does not need to own equity in a Reporting Company to be considered a beneficial owner. Specific rules apply so please consult your Woods Oviatt Gilman LLP attorney to assist you in making this determination.

Who is a Company Applicant?

A Company Applicant is the person that formed or registered the Company by filing a document with the secretary of state or similar agency that created or registered the Reporting Company. There can be up to two individuals that qualify, including (i) the individual that directly files the documents, and (ii) if there was more than one individual involved in the filing of the document, the individual who is primarily responsible for directing or controlling the filing. Remember that Reporting Companies that were formed or registered prior to January 1, 2024 do not need to file information on the Company Applicant. If Woods Oviatt Gilman LLP has formed a legal entity for you, we will provide you with the FinCEN ID numbers for your Company Applicants. A Company Applicant does not change over the life of the Reporting Company.

What are the deadlines?

If the Reporting Company was formed or registered before January 1, 2024, the Reporting Company has a full year (until January 1, 2025) to file its first BOI Report (but please don’t wait that long!).

Entities newly formed or registered between January 1, 2024 and December 31, 2024, have 90 days from notice of its creation or registration to file its first BOI Report. For entities formed on and after January 1, 2025, the deadline for the initial report will be 30 days.

What if information on the BOI Report changes?

Reporting Companies must report any changes in the reported information (examples include: change of address, hiring or firing of beneficial owners, death of a beneficial owner, mergers and acquisitions, changes due to change in passport or name or address, etc.) within 30 days after the change occurs (special rules apply as to timing in the event of a death of a beneficial owner).

How do I file?

BOI reports must be filed electronically and can be filed directly with FinCEN on its filing portal or through a service company. The filing itself is free of charge. Service companies will charge a fee for their services. Filing is your responsibility and is not handled by Woods Oviatt Gilman LLP although we can assist you with any questions you may have. The link to file with FinCEN can be found here: https://boiefiling.fincen.gov/fileboir

If you would like to use a service company, please contact your Woods Oviatt Gilman LLP attorney for recommendations.

What is a FinCEN Identifier?

Individuals and Reporting Companies can apply for a FinCEN ID to use in place of providing sensitive information on the BOI Report. The individual or Reporting Company provides their sensitive information directly to FinCEN and a FinCEN ID is issued to that person or entity. That number can then be used in lieu of providing the sensitive information directly on the BOI Report. This particularly useful for individuals that may be required to submit beneficial ownership information or company applicant information for several reporting companies.

What are the penalties for non-compliance?

Civil penalties can be assessed of up to $500 per day for each day that the violation continues. Criminal penalties can include imprisonment for up to two years and a fine of up to $10,000. Senior officers of a Reporting Company that fail to file may be held responsible. Civil or criminal penalties may be also be imposed on a person who willfully causes a Reporting Company either not to file or to file an incomplete or false BOI Report.

Who can I call with questions?

For more information, contact Kate Polozie, Esq. at (585) 987-2910 or kpolozie@woodsoviatt.com or, for tax-exempt organizations, Danielle Ridgely, Esq. at (585) 987-2914 or dridgely@woodsoviatt.com, or your Woods Oviatt Gilman LLP attorney. The Small Entity Compliance Guide available on the FinCEN website https://www.fincen.gov/boi/small-entity-compliance-guide is also a helpful source of information.