Important changes to Business and Beneficial Ownership reporting requirements under the Corporate Transparency Act
CLIENT ALERT: Important changes to Business and Beneficial Ownership reporting requirements under the Corporate Transparency Act
The owners of any entity registered to do business in Pennsylvania (or any state within the US) must promptly determine whether they are obligated to report information to the US Treasury’s bureau known as the Financial Crimes Enforcement Network (FinCEN) for initial and ongoing reporting obligations concerning “Beneficial Ownership Information” or BOI. Reporting company owners, officers, managers, and directors are advised to become familiar with the new federal regulations requiring compliance. The FinCEN’s BOI reporting platform at www.fincen.gov/boi has become active for use in January 2024, so noncompliance penalties will likely begin to be assessed this year of 2024 and thereafter.
The new federal regulations arise from the Corporate Transparency Act (CTA), as part of the 2021 National Defense Authorization Act, which aims to combat terrorism, money laundering, and the concealment of control of and ownership in business entities. The CTA mandates that certain entities, termed “reporting companies,” disclose information about both: a) the people who form those companies, called “applicants,” and b) the people who own or control a substantial portion of the company, termed “beneficial owners,” to FinCEN. Even someone who does not own any company interest but has ability to control the company’s decisions may be required to report BOI to FinCEN, according to the new regulations.
Who Are Reporting Companies—Reporting companies include domestic corporations, limited liability companies (LLCs), or similar entities registered at the state level, and foreign entities conducting business in the U.S. These entities must disclose beneficial owner details and company applicant information. There are 23 exceptions for companies that already report details to federal regulators, and such exceptions include tax exempt non-profits and large businesses with 20 or more employees and $5 million in annual gross receipts. Those exceptions can generally be summarized as covering entities that are already reporting substantive information to governmental authorities concerning ownership details, so the lack of specific BOI reporting to FinCEN merely avoids duplicative effort from such already-regulated entities.
Reporting Requirements:
• Reporting companies formed before January 1, 2024, must file a BOI report by January 1, 2025.
• Entities formed on or after January 1, 2024, but before January 1, 2025, must submit the BOI report within 90 days of formation.
• For entities formed after January 1, 2025, the BOI report must be filed within 30 days of formation.
• Any changes to reported information must be updated within 30 days of the alteration.
• Information to be disclosed includes entity details, beneficial owner particulars (name, birthdate, address, photo identification), and a company applicant’s information (for new entities).
Individual Reporting Exceptions and FinCEN Identifier:
• There are exceptions for minors, certain entity-owned beneficial owners, and applicants for reporting companies formed before January 1, 2024.
• The use of a FinCEN identifier can substitute for personal information. An application for a FinCEN identifier requires the same information as for the BOI report.
Who Qualifies as a Beneficial Owner—an individual holding at least 25% ownership or substantial control over the entity, including board members, officers, and persons with similar authority.
Penalties—Failure to comply with CTA reporting requirements may lead to significant penalties, including up to $10,000 in fines and imprisonment for willful violations.
Conclusion:
We advise seeking legal counsel for guidance on CTA compliance and reporting obligations. Should you have any questions or require further assistance regarding these changes, please do not hesitate to contact the Corporate Practice Group at Gibbel, Kraybill & Hess.