As of January 1, 2024, the Corporate Transparency Act (CTA) has taken effect. The Act was originally signed in 2021 but has taken several years of planning to implement. We wanted to walk through some of the basic guidelines to clarify who needs to file the paperwork to comply with this new act.
The CTA was created to help the Financial Crimes Enforcement Network (FinCEN) with tracking and discovering fraudulent entities that are laundering money, hiding assets, and funding illegal activities. The information that needs to be filed is fairly straightforward for the majority of businesses that need to file a report. We want to focus on the basics throughout this overview. If you have any questions or more complex situations please contact us and we can talk through your situation with you.
The first step to filing a Beneficial Ownership Information (BOI) report is to determine if the business is formed in such a way that it is subject to the CTA. Only entities that are formed by filing with the Secretary of State are required to file a BOI report. The most common types of entities are LLCs, Corporations, and some types of partnerships.
Once an organization has determined that it needs to file a BOI, then it can work on determining who the beneficial owners are. This is the step that gets messy since multiple ways would qualify an individual as a beneficial owner. Some of the ways to qualify are as follows; owns 25% or more of the business's equity, serves as a key decision maker in the business, or is an officer, director, or manager. The definition is very broad which leads to some interpretation in larger organizations.
After the beneficial owners have been identified the data collection process can start. To file the reports an entity will need to collect the following information.
- Information about the entity:
- Legal Name
- Trade name, if any
- Address of the business (this cannot be a P.O. Box)
- Tax identification number
- Information about beneficial owners:
- Name
- Date of birth
- Residential address
- A copy of an unexpired photo identification (ex. driver's license, passport, or state identification card)
Certain businesses will be exempt from the BOI reporting requirements, as well as large entities. The definition of a large entity is an entity that has 20 or more employees at all times, has more than $5 million in United States sales, and has a physical office in the U.S. If an organization does not meet all of these requirements then they are considered a small organization and required to file the BOI report.
That covers all of the reporting requirements, except for the due date of the report. If the entity existed before 1/1/2024 then it has until 1/1/2025 to file the BOI report. However, if the entity was formed after 1/1/2024 then it must file the BOI within 90 days of being created. The penalties for not filing a BOI range from $500 per up to 2 years of imprisonment. FinCEN is taking this reporting very seriously, so entities must complete this filing promptly.
If you have any questions on about your entity's specific situation please do not hesitate to reach out.
Comments
Post a Comment