If you own a business, or plan on registering one in the future, YOU WILL WANT TO READ THIS…
Some significant changes are coming for entities formed or registered to do business in the United States. Congress has passed the Corporate Transparency Act (CTA). The act requires business entities to report their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Further, the CTA will affect previously registered/formed companies as it will require them to report their BOI as well.
What is Corporate Transparency Act?
The Corporate Transparency Act (CTA) was passed by congress and left to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) to create the rules and guidelines as to how it would be implemented and enforced. The CTA is a part of the Anti-Money Laundering Act contained within the National Defense Authorization Act and its intended creation was “to require certain entities to file reports with FinCEN that identify two categories of individuals: The beneficial owners of the entity; and individuals who have filed an application with specified governmental authorities to form the entity or register it to do business.”
What is the Intended Purpose of the CTA BOI Reporting?
It is believed that this reporting will “significantly enhance the ability to protect the U.S. financial system from illicit use and provide essential information to law enforcement and others help prevent corrupt actors, terrorists, and proliferators from hiding money or other property in the United States.”
Who Must File?
FinCEN has determined that two types of Reporting Companies must report, Domestic and Foreign.
- A domestic reporting company would include a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe.
- A foreign reporting company would include a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction.
What information must be provided?
The reporting company, which could be the company itself or a “Company Applicant,” would need to identify itself by providing their full company name, any trade names or DBA’s, business address, the jurisdiction of formation for a domestic company and the first state of registration for a foreign company and provide the IRS Tax ID number.
They would then report four pieces of information about each of its beneficial owners and company applicants:
- A unique identifying number from an acceptable identification document, such as a non-expired passport, government-issued ID document, or driver’s license. (They will also be required to provide an image of the document that contains that unique identifying number and a photo of the individual.)
When must the BOI be Filed?
When you must file the BOI Report depends on a few factors. When a new company, Domestic to the US or Foreign is formed/registered they would have 14 days to file. If the company had to file an updated report to their previous report, then they would have 30 days; however, the reporting company would only have 14 days to correct any inaccurate reports, from the time they became aware of any discrepancies in what was filed.
Preexisting companies will have to file the initial report within one year of the effective date of the new rule.
FinCEN has yet to propose an effective date for the proposed rule. However, once the effective date of the final rule, beneficial ownership reporting will begin. Entities formed or registered on or after that date will have to file the initial report within 14 days of their date of formation/registration and preexisting companies will have to file the initial report within one year of the effective date.
How do you file?
Currently FinCEN is still in the process of developing the system that will allow you to file the reports and house them. Such as the beneficial ownership information technology system.
How is the information collected going to be stored or distributed?
FinCEN is required to maintain the information, these reports will collect, in a confidential, secure, and non-public database.
However, FinCEN is authorized to disclose the collected information to [certain government agencies, domestic and foreign, and to financial institutions to assist them in meeting their due diligence requirements. All disclosures of information are subject to protocols to protect the security and confidentiality of the BOI. FinCEN itself is required to establish these protocols].
It is important to know that the CTA does not make beneficial ownership information publicly accessible nor to be queried under the Freedom of Information Act.
There are also some companies that are exempt (23 exemptions) from reporting in this manner. Such as companies that already provide information to a relevant government agency heavily regulated companies, and larger companies. The Act explicitly exempts entities such as:
Most financial services institutions, including investment and accounting firms, banks and credit unions, as well as securities trading firms that report to and are regulated by government agencies such as the Securities and Exchange Commission, the Office of the Comptroller of the Currency or the FDIC. Churches, charities, and other non-profit organizations. As well as companies that employ more than 20 people, report revenues of more than US $5 million on tax returns, and have a physical presence in the U.S.
A beneficial owner is any individual who either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company.
- Is any individual who files the document that creates the reporting company, including any individual who directs or controls the filing of such document by another person. (i.e. such as Accumera or an Attorney)
- For a foreign reporting company, a “company applicant” is any individual who files the document that first registers the reporting company, including any individual who directs or controls the filing of such document by another person.
We will continue to monitor FinCEN requirements and advise our clients accordingly. We fully expect that Accumera LLC will be required by law to collect this information from our clients and report the information to FinCEN at the time of registering your business. We will be ready to deal with the filing requirements for new and any existing businesses.
Please contact us with any questions. Thank you!
United States, Financial Crimes Enforcement Network. “Fact Sheet: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking (NPRM).” 7 Dec. 2021, https://www.fincen.gov/news/news-releases/fact-sheet-beneficial-ownership-information-reporting-notice-proposed-rulemaking.
United States, Financial Crimes Enforcement Network. “Beneficial Ownership Information Reporting Requirements.” Federal Register, 8 Dec. 2021, https://www.federalregister.gov/documents/2021/12/08/2021-26548/beneficial-ownership-information-reporting-requirements.
DEPARTMENT OF THE TREASURY, Financial Crimes Enforcement Network, 31 CFR Part 1010, “Beneficial Ownership Information Reporting Requirements”. Federal Register / Vol. 86, No. 233 / 69920-69974 / Wednesday, December 8, 2021 / Proposed Rules, https://www.govinfo.gov/content/pkg/FR-2021-12-08/pdf/2021-26548.pdf.