Why Was the CTA Enacted?>

The purpose of the CTA is to help prevent and combat money laundering, terrorist financing, corruption and tax fraud through the use of shell companies. 

How Will My Company Be Impacted by the CTA?>

Millions of legitimate companies and constituents will incur a new administrative burden to become informed and to comply on a continuing basis with the CTA's reporting regime.

What Is a Reporting Company?>

Reporting companies include both domestic and foreign entities.  Domestic reporting companies include corporations, LLCs, or any other similar entities that are created by the filing of a document with a secretary of state or any similar office under the laws of a state or an Indian tribe (including U.S. territories and possessions).  Foreign reporting companies include entities formed under the laws of a foreign country that are registered to do business in the U.S.

Which Entities Are Out of Scope?>

Sole proprietorships, general partnerships, unincorporated associations, and common-law trusts are excluded because their creation does not involve filing a document with a secretary of state or similar office. Foreign entities that do not register to do business in a state or with an Indian tribe likewise are also excluded.

Which Entities Are Exempt from Reporting Requirements?>

There are 23 entity exemptions, including:

• Public companies. Companies registered with the U.S. Securities and Exchange Commission (SEC) such as banks, insurance companies, broker-dealers, registered investment advisers, investment companies and pooled investment vehicles, tax-exempt entities and other highly regulated entities.

• Large operating companies.  Companies that have at least 21 full-time employees in the U.S., last year's federal income tax filing showing at least $5 million in U.S. sources gross receipts, and an operating presence in the U.S.

Comment: This exemption is available to privately held, for-profit entities, whether regulated or not. Tested entity must employ employees and maintain the office, but gross receipts can be determined on a consolidated basis, if applicable. A company may fall within or without the exemption in different periods, depending on its gross receipts and/or number of employees.  Further, this exemption is unavailable to "startup entities" because these entities would not satisfy the tax return requirement in their year of organization.

• Subsidiaries of certain exempt entities. Subsidiaries that are wholly controlled or owned by entities that are exempt from reporting are also exempt from reporting; however, subsidiaries of pooled investment vehicles and certain other entities are ineligible to use the subsidiary exemption.

Comment: This is a most useful exemption for lower-tier entities of an exempt entity. 

Who Is a Beneficial Owner?>

General Rule. An individual who, directly or indirectly, exercises "Substantial Control" over a Reporting Company or owns or controls at least 25 percent of the Ownership Interests of a Reporting Company.

25 Percent Ownership Test Three-Part Analysis

Substantial Control Test Indicators

25 Percent Ownership Test Three-Part Analysis Ownership Interest: equity, stock, voting rights, capital or profits interests, convertible instrument, options and other ownership mechanisms. Ownership or Control of Ownership Interest: Any contract, arrangement, understanding, relationship or otherwise, such as through direct or indirect ownership, debt, joint ownership, nominee, trust, or owning or controlling intermediate entity that owns/controls Reporting Company. Calculation: Determine whether an individual directly or indirectly owns or controls 25 percent of the ownership interest (by reference to voting power, value, capital and profits interests or, if foregoing calculations cannot be performed with certainty, an individual is deemed to hold 25 percent ownership/control provided the individual owns/controls 25 percent or more of any class of ownership interest).

Senior Officer (President, CEO, COO, CFO, General Counsel or any other officer, regardless of official title, who performs similar functions). Appointment or Removal Authority (of a Senior Officer or majority of Board of Directors). Important Decision-Maker over important decisions (e.g., business, finances, structure). Catch-All: Any other form of Substantial Control.

Comments:

• Equity ownership is not necessary under this test.

• Test requires all individuals who exercise Substantial Control over an entity to be identified and reported.

• Directors may exercise Substantial Control, depending on facts, but application unclear.

 

Exceptions from Beneficial Owner Definition. A few exceptions to the meaning of Beneficial Owner includes: 1) minor child; however their parent or guardian must be listed on a BOI report in place of the minor, 2) nominee, intermediary, custodian, agent, 3) employee (other than Senior Officer), 4) inheritor (future interest through a right of inheritance), and 5) creditor.

Who Is a Company Applicant?>

Definition. A Company Applicant is "an individual who directly files the document involved with the formation or registration of a Reporting Company," as well as "an individual who is primarily responsible for directing or controlling the filing" if more than one person was involved. 

Comment: A Reporting Company formed on or after January 1, 2024 (but not before), is required to report at least one Company Applicant, and at most two.

What Are the Reporting Obligations of a Reporting Company to FinCEN?>

Initial Report

Reporting Company Created/Registered Before January 1, 2024	Reporting Company Created/Registered On or After January 1, 2024
Provide information about: Itself Beneficial Owners But not Company Applicants	Provide information about: Itself Beneficial Owners Company Applicants

 

Initial Report Information Items for Reporting Company, Beneficial Owner and Company Applicant

• Reporting Company. Full legal name, trade name or doing business as (DBA), current address (cannot be a P.O. Box) (must be principal place of business in U.S., or primary U.S. location if the company's principal place of business is not in the U.S.), jurisdiction of formation and, for a foreign company, state/tribal jurisdiction of first registration, tax ID number or, for a foreign company, foreign tax ID (if no U.S. ID).

• Beneficial Owner. Full legal name, date of birth, residential address, unique ID number and issuing jurisdiction, and an image of one of the following non-expired documents: U.S. passport, state driver's license, or ID issued by a state or local government or an Indian tribe; if a foreign individual does not have any of the foregoing, then a foreign passport. (No other forms of ID are permissible.)

• Company Applicant. Same information as for a Beneficial Owner but use individual’s business address (no P.O. Box) for an individual who forms/registers a company in the course of business.

• FinCEN Identifier. A unique ID number issued by FinCEN to an individual upon request, which is used by a Reporting Company in lieu of a Beneficial Owner's or Company Applicant's personal identifiable information (PII); individuals with FinCEN Identifiers are required to update FinCEN of any change in PII within 30 calendar days after a change occurs.

Comment:  Persons that are Beneficial Owners of multiple entities and who register for a FinCEN Identifier can use their unique identifying number on each BOI report that the Beneficial Owner is listed on.  

Due Date

Reporting Company Formed/Registered prior to January 1, 2024	Not later than January 1, 2025
Reporting Company Formed/Registered January 1, 2025, and thereafter	Within 90 calendar days of the earlier of 1) actual notice of creation/registration or 2) public notice of creation/registration.
Reporting Company Formed/Registered in 2024	Within 30 calendar days of the earlier of 1) actual notice of creation/registration or 2) public notice of creation/ registration.

Updated Report. Within 30 calendar days after a change of previously reported information for Reporting Company or Beneficial Owner occurs.

Corrected Report. Within 30 calendar days after Reporting Company became aware or has reason to know of any inaccuracy.

Where to Send. File electronically with FinCEN on their secure filing system. See FinCEN's Beneficial Ownership Information website.

Are There Penalties for Noncompliance?>

Yes. Both civil and criminal penalties for 1) the willful failure to report, 2) the willful failure to update beneficial ownership information and 3) willful failure to correct inaccurate beneficial ownership information.

• Civil Penalties: $500 per day in civil monetary penalties (no maximum amount).

• Criminal Penalties. $10,000 fine, imprisonment for no more than two years, or both.

• Comment: Penalties may apply to Reporting Company, as well as to an individual who caused a failure to correctly, timely and properly report or was a Senior Officer at the time of a failure.