Corporate Transparency Act – Belk on Business – Episode 183

In 2021 as part of the National Defense Corporation Act, the Corporate Transparency Act was enacted. Its intent was to protect national interest against money laundering and financing of terrorism. The objectives to help prevent the misuse of certain types of entities (namely LLCs, corporations and partnerships) by “bad actors” by collecting beneficial ownership information of any entity organized in the US and to create a database of the information in a manner that is useful.

The BOI report (beneficial ownership information) is to be filed with the FINCEN (financial crimes enforcement network) which is part of the US Treasury Department by any reporting company. A reporting company is any company (namely LLCs, corporations and partnerships) that registers with a state’s secretary of state (or state equivalent) or a foreign company registered to do business in the US. Trusts are generally excluded from needing to file the report since they aren’t registered with a state’s secretary of state.

Not all entities are required to file the report. There are 23 exemptions which are mostly companies that are already under some anti-money laundering legislation (mostly financial institutions, government agencies, insurance companies) as well as nonprofits, larger companies, subsidiaries, public utilities, and inactive businesses.

A large operating company is one that has over $5mil in gross receipts in the previous year, has over 20 full time employees and has a physical office in the US.

A beneficial owner is one that has control in an entity. Generally, if an individual owns over 25% of the entity or has substantial control over the entity (has decision making responsibilities such as a senior officer, has board representation or certain financial arrangements). If a trust has substantial control over an entity, the trustee would be considered a beneficial owner.

For entities that were created prior to 2024, the BOI report must be filed by January 1, 2025. For entities created after January 1, 2024, the entity has 90 calendar days to report. Entities created after January 1, 2025 will have 30 calendar days to report. If there are changes to the beneficial owners, an entity will have 30 calendar days to file an updated report.

The following information will need to be provided:

1) Full legal name of the entity

2) Trade name/dba for the entity

3) Address

4) State of formation

5) EIN

6) Full legal name of beneficial owners

7) SS# and date of birth

8) Residential address

9) Active passport or driver’s license

Penalties for not filing are up to $500 per day up to a maximum $10,000. Criminal penalties can also apply.

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