Corporate Transparency Act – What Every Small Business Needs To Know

Posted by: Karen Booher on February 4th, 2024

Beginning January 1, 2024, under the Colorado Transparency Act (CTA), businesses that meet certain criteria will be required to submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), which will include information about the individuals who ultimately own or control the company.

Congress enacted the Corporate Transparency Act (CTA) in 2021. This law aims to help law enforcement prevent, identify, and combat financial crimes – including tax fraud, money laundering, and financing for terrorism – by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market.

Who is Required to File?

Companies required to report a BOI to FinCEN are called “reporting companies”. The two types of reporting companies are:

1. Domestic reporting companies. These include corporations, limited liability companies (LLCs), and other entities created by the filing of a document with a secretary of state or any similar office in the United States.

2. Foreign reporting companies. These include entities formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

There is no fee for submitting reports, and electronic forms will be available on FinCEN’s website.

Exempt Businesses:

Some businesses are exempt from filing a BOI report. The majority of exemptions are for businesses that are frequently subject to substantial federal or state regulation or large operating companies.

If your business is NOT a corporation, LLC, or an entity created by a filing document with the Secretary of State – you may be exempt. Other exemptions include businesses with more than $5 million in gross receipts and at least 20 employees.

Who is Considered a Beneficial Owner?

A beneficial owner of a reporting company is any individual who, directly or indirectly:

• Exercises substantial control over a reporting company; OR
• Owns or controls at least 25% of the ownership interests of a reporting company

An individual exercises “substantial control” over a reporting company if the individual meets ANY of the following four general criteria:

1. The individual is a senior officer;
2. The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;
3. The individual is an important decision-maker; or
4. The individual has any other form of substantial control over the reporting company.

A reporting company can have multiple beneficial owners. For example, there could be one beneficial owner who exercises substantial control over the reporting company, and a few others who own or control at least 25% of the ownership interests of the reporting company.

What Information Must be Filed?

A reporting company must report the following information for EACH of its beneficial owners:

• Full legal name
• Date of birth
• Current residential address
• Unique Identifying Number from a non-expired state or government-issued ID (U.S. Passport, State driver’s license, etc.)

Filing Deadlines & Penalties for Noncompliance:

• Reporting companies in existence prior to January 1, 2024 must file the BOI Report by January 1, 2025.
• Reporting companies formed during 2024 must file within 90 days of forming.
• Reporting companies formed on or after January 1, 2025 must file within 30 days of the company’s formation.

Once filed, a BOI Report must be updated within 30 days after a change to any information on the BOI Report.

Failure to comply with this new law can result in civil and criminal penalties. Penalties can include fines of up to $500 per day that the violation continues, criminal penalties of up to two years of imprisonment, and a fine of up to $10,000.

This blog is meant for general informational purposes and does not represent legal advice.

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Sources:

• https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act
• https://firstepbusiness.com/get-started/boi/form?utm_source=google&utm_medium=ppc&utm_campaign=boi-information&utm_term=corporate%20transparency%20act&gad_source=1&gclid=CjwKCAiAiP2tBhBXEiwACslfnsxAmw3lsZyOqGhL0EG5nIuekiKYliQ34Ds6NGEJzApnQzXEgAB1thoCamAQAvD_BwE