THE CORPORATE TRANSPARENCY ACT & FINAL RULE FOR BENEFICIAL OWNERSHIP REPORTING
The Corporate Transparency Act (CTA), which was passed by Congress as part of the Anti-Money Laundering Act of 2020, requires reporting of beneficial ownership information (BOI) and was implemented by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury on September 29, 2022. (31 CFR 1010.380). The CTA was created to safeguard the U.S. financial system against illegal financial behavior and dangers to national security, including the creation of sham companies to launder money or escape U.S. sanctions. The law compels certain domestic and international businesses to submit specific BOI to FinCEN.
Although the CTA is focused on rooting out fraud and illegal shells, there has been little information about how this act will impact small businesses who fall under the requirements to report.
Given the severe confidentiality constraints imposed on FinCEN concerning the information acquired and the vast amount of businesses that currently fall under the act, the CTA orders FinCEN to draft guidelines detailing the information to be collected, the mode of collection, and how such information is to be shared with other law enforcement authorities.
According to the Reporting Rule, some domestic and international businesses must provide FinCEN with “beneficial ownership information” (“BOI”) reports. The reporting rule outlines who must file a BOI report, what information must be disclosed, and when a report is due.
Who must report following the ‘Reporting Rule’?
The Reporting Rule must be followed by every corporation, limited liability company (“LLC”), or other organization formed by filing with a secretary of state or other comparable agency following the laws of a State or Indian tribe. The Reporting Rule also applies to any company, LLC, or other organization organized under the laws of a foreign nation authorized to conduct business in any State or tribal jurisdiction.
As a result, the rule mandates that the following businesses (each a “Reporting Company”) make reports unless they qualify for an exemption:
- S. companies/corporations
- S. LLCs
- other U.S. organizations, including statutory trusts, limited partnerships, and business trusts
- Non-U.S. companies, LLCs, and other similar organizations are authorized to conduct business here in the U.S.
Who is exempted from this rule?
The Reporting Rule outlines different categories of companies that are not considered Reporting Companies and are thus not obligated to submit reports following the Reporting Rule. Currently, the only exempted companies are governmental agencies, banks, credit unions, money service companies, licensed broker-dealers, exchanges, clearing houses, accounting firms, public utilities, some tax-exempt entities, and organizations that support tax-exempt entities are just a few examples. Thus, most companies, even single-member LLCs, will be required to follow the Reporting Rule.
Disclosure of Information
According to the final rule, a Reporting Company must provide FinCEN with the following information relating to itself:
- Full legal name,
- any trade names,
- current address,
- jurisdiction of formation,
- Internal Revenue Service taxpayer identification number (TIN),
- employer identification number, or
- or, in the case of a foreign reporting company that has not received a TIN, a tax identification number issued by a foreign jurisdiction, and the name of that jurisdiction.
Most of this information is commonly found in the company’s annual reports. However, Reporting Companies with their major place of business in the United States must give the street address of that location. In contrast, those with their principal place of business abroad must give the street address of the main U.S. site where their business is done.
The final rule also stipulates that a Reporting Company must provide FinCEN with the following information for each beneficial owner and company applicant:
- The person’s full legal name;
- their date of birth;
- their current home or place of business address; and
- either their FinCEN identifier or another distinctive identification number from a valid form of identification (and a picture of that document).
The CTA employs a two-tiered system for beneficial owners and company applicants, requiring a home address for everyone else and a business address for applicants who incorporate or register companies in the course of their business (such as beneficial owners).
The BOI reporting rule, according to FinCEN, will support efforts made by U.S. government departments and agencies, law enforcement, tax authorities, and financial institutions to safeguard the financial system against unauthorized use that compromises U.S. national security and foreign policy interests. However, the rule does affect a wide range of U.S. companies, and FinCEN is still working out the exact logistics of implementation. For example, companies created after January 1, 2024, will have to file their BOI reports within thirty (30) days of the creation of their companies, and all currently existing companies (or companies registered before January 1, 2024) will have until January 1, 2025, to file their BOI reports.
For more information on what this means for your small business, schedule your free call today!