The Corporate Transparency Act:

Important reporting requirements for your business entity and its Beneficial Owners

Starting in 2024, both existing and newly-formed corporations, limited liability companies (LLCs), limited partnerships, and other entities that file or have filed formation papers with a state’s Secretary of State’s office (or similar government agency) must file a report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the entity’s “beneficial owners.”  Entities in existence prior to January 1, 2024, have until January 1, 2025, to file these reports.

This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money.  Unfortunately, this will impose burdensome reporting requirements on most businesses, and the willful failure to report information and timely update any changed information can result in significant fines of up to $500.00 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000.00 and/or two years imprisonment.  These penalties can be imposed against the beneficial owner, the entity and/or the person completing the report.

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or exercise substantial control over the reporting company (even if they do not actually have an ownership interest).  While this may seem to only impact a few significant owners, it can encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members).  Given the severity of the fines, it may be safer to err on the side of overinclusion rather than underinclusion.

For entities formed after 2023, information will also have to be provided about the company applicants (the person who actually files the formation/registration papers and the person primarily responsible for directing or controlling the filing of the documents).

The types of information that must be provided (and kept current) for these beneficial owners include the owner’s legal name, residential address, date of birth, and unique identifier number from a nonexpired passport, driver’s license or state identification card.  The entity will also have to provide an image of any of these forms of documentation to FinCEN for all beneficial owners.

Most entities must file these reports by January 1, 2025.  However, entities formed in 2024 will have 90 days from the entity’s formation/registration to file these reports.  Entities formed after 2024 must file the report within 30 days of the entity’s formation/registration.

Should any of the reported information change or a beneficial ownership interest be sold or transferred, the entity must report this information within 30 days of the change or face the potential of having the penalties described above imposed.  Changes include reporting a beneficial owner’s change of address or name, a new passport number when a passport is replaced or renewed, or providing a copy of a renewed driver’s license.

It is important that you take action soon to make certain that you comply with these new requirements.  If you are required to file this information, your failure to do so can have severe consequences which are detailed above.  It will be necessary to determine who might be treated as a beneficial owner in your business and what systems you can put in place to ensure that the information regarding these beneficial owners is kept current. All of the reporting under these new requirements must be done online at https://boiefiling.fincen.gov. You may obtain more information at www.fincen.gov/boi.  While you can file this information for your own entity, the requirements are complicated and you would be well-advised to review them with your legal counsel before submitting the report.  These are urgent and time-sensitive reporting requirements which you cannot ignore.  Please exercise great caution in making sure that you comply with them.

David P. Wilson, Esq.
Legal Counsel, ICTA
Walentine O’Toole, LLP
11240 Davenport Street
Omaha, Nebraska 68154
dwilson@walentineotoole.com
(402) 505-8557