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Corporate Transparency Act resources
Transcript
Greg Corombos: Hi, I'm Greg Corombos. So our guest in this edition is Tim Jensen, Senior Service Manager at BizFilings. Today Tim joins us to discuss the Corporate Transparency Act. What does this law do? And what do small business owners need to know in order to stay in compliance? And, Tim, thanks so much for being with us.
Tim Jensen: Thank you for having me today, Greg. It's great to be back with you.
Greg Corombos: Let's start with the very beginning here. What is the Corporate Transparency Act?
Tim Jensen: This is the million dollar question that many small business owners have, if they have even heard of it, right? The Corporate Transparency Act, or CTA, went into effect on January 1, of 2024. This new law requires many small businesses to submit information about the business and its owners to FinCEN, which stands for the Financial Crimes Enforcement Network, and it's a department within the United States Department of the Treasury. The law itself is aimed at combating illegal activities, such as money laundering, tax fraud, and the financing of terrorism by improving transparency in corporate ownership. The CTA’s reporting requirements are intended to make it harder for bad actors to use and or hide behind shell companies in carrying out these types of illegal activities.
Greg Corombos: Definitely some terms that might be new for people. CTA itself. And you also mentioned FinCEN, the Department of the Treasury, that's the one you're reporting to here. So are all small businesses required to file a report with FinCEN?
Tim Jensen: With many governmental requirements, or laws, the answer to this is not so cut and dry. The CTA defines [that] the requirements extend to business entities that were created by a filing with a Secretary of State or a similar office, or they were required to register with a state unless that entity qualifies for an exemption. Businesses that may be required to file with FinCEN include entities such as corporations and LLCs, that are either domestic or foreign companies. Any businesses that were not created or registered in the US by filing with a Secretary of State or a similar office are not required to make this filing. And examples of those include Corporate Transparency Act
Greg Corombos: Okay, Tim, you mentioned exemptions. So how can a business qualify for an exemption?
Tim Jensen: Yeah, there actually are 23 exemptions available from the CTA’s beneficial owners information reporting requirements, which mainly apply to larger businesses, or those that are already subjected to other federal reporting requirements. So examples of these types of businesses that qualify for an exemption include publicly traded companies (meeting specified requirements), many nonprofits, and certain large operating companies. However, most small business LLCs and corporations do not fit the criteria for an exemption. And it's been estimated that there are more than 35 million small businesses that will need to file this report.
Greg Corombos: So some businesses will get exemptions and they won't have to file but for those who do, what is a reporting company required to do?
Tim Jensen: Reporting companies is the term that's used to describe the business entities that are going to be required to make a filing with FinCEN and actually file this report. They must file what's called a “beneficial ownership information” or BOI report with FinCEN. And this report contains information about the reporting company, such as their name and address, if they have any fictitious or “doing business” names, as well as their IRS tax ID or EIN, as well as the jurisdiction that they formed in. In addition, the report requests information about the beneficial owners, such as their legal name, address, date of birth, and either a driver's license or passport information to help verify some of that. A beneficial owner is considered someone who directly or indirectly either exercises a substantial control over the reporting company, or owns or controls at least 25% of its ownership interests. So examples of a beneficial owner could include anyone who's a senior officer, such as a president or a CFO, majority shareholder, or even a trustee who holds or controls at least 25% of the company's ownership interests through a trust. There is also an additional requirement for reporting companies that were created or registered on or after January 1, 2024. These companies must also provide details about the company applicant — another new term here — which is the individual who actually files the document to create or register that reporting company with a Secretary of State or similar office. And then lastly, if an individual is a beneficial owner of more than one entity or reporting company, their information needs to be reported separately with each entity.
Greg Corombos: We've made it real clear, Tim, what's required in these beneficial ownership information reports. What's the deadline for filing them?
Tim Jensen: This is a great question. The filing deadline is actually based on when a reporting company was created or registered. So a reporting company that was in existence before January 1, 2024 — which means that it was created or registered to do business by filing with the state — that reporting company has until January 1 of 2025 to file its initial beneficial ownership information report.
If a reporting company was created or initially registered this year in 2024 —- on or after January 1 2024, and then before January 1 2025 —- it must file their BOI report within 90 calendar days of the date on which it receives actual or public notice that the entity was actually registered and has become effective.
And then finally, if a reporting company is created or registered next year and beyond — on or after January 1 of 2025 — it’s going to have to file this report within 30 calendar days of the date on which it receives actual public notice that the entity has become effective.
Greg Corombos: We're talking with Tim Jensen of BizFilings. And Tim, does the CTA have an annual filing requirement? Or are we talking about a one time filing here?
Tim Jensen: Yeah, while there is no type of annual filing requirement, there are a couple of ongoing compliance responsibilities that business owners need to be aware of. First, if there is any change in the information reported about the reporting company or its beneficial owners, the reporting company must file an updated report — basically, you know, detailing all the changes that have managed to report — within 30 calendar days after the date on which that change takes effect. So changes that would require an updated report could include any changes to the reporting business's name, their primary business address, maybe a change to the beneficial owners names (such as a name change through marriage), or even an address change. And then secondly, a reporting company will also have to report changes like a change in who the beneficial owners are, or if the reporting company becomes eligible for an exemption. So if the owners change or anything like that takes place during the calendar year, they're gonna have to make those changes and update that report. One thing to note, however, is that you're only required to report changes to either the reporting company or to its beneficial owners, any other changes would not need an updated report. And then we also get questions like, “Hey, I made a mistake. What do I do in that regard?” If by chance an error was made on the initial BOI report, whether it's about the reporting company or the beneficial owners themselves, or even the company applicant, a corrected report must be filed within 30 calendar days after the reporting company becomes aware that it may have entered in some inaccurate information.
Greg Corombos: What can a business do to comply with the Corporate Transparency Act, to make sure it's complying? And what are some steps to get started?
Tim Jensen: The first thing that I would suggest is to really get educated on what the requirement is, and if it applies to your business. The biggest area of concern that I've seen so far, is an overall lack of knowledge about the new law. Many businesses are still unclear if the law applies to them, or even unaware of the Corporate Transparency Act itself and what it might mean for them. However, it's essential for these businesses, required to submit a fine to understand these reporting obligations, as there are stiff penalties for violations of the Act, including fines of up to $10,000, and even imprisonment, if it's proven that you willfully did not file the report. Another thing is, there's also a lot of misinformation out there right now, as well people trying to take advantage of this general lack of awareness regarding the law. I suggest finding a couple of trusted resources online to ensure that you understand the law and how it may impact your business. There are many online resources and tools available, and FinCEN has provided guidance on its own website. BizFilings also has several explanatory articles and a simple quiz that you can take to see if you may be subjected to the CTA’s reporting requirements. And then if you do find out that you are going to be required to file the NOI report, I suggest you start getting going on it early and get moving on it. So determine who your beneficial owners are. It's a good idea to know when the filing deadline is, so you have plenty of time to gather the information that's required. So rushing around at the end, you know, trying to gather that information ahead of a filing deadline. And it's also a good practice to develop an internal procedure to make sure that if any of that information does change that I mentioned earlier, that would require an updated report, that you have a way to kind of track that and know when those changes might need to be updated and things like that.
And then lastly, there's a lot of questions that come about this. I would suggest if you have you know questions that can't get answered through the resources that I explained, to seek legal advice to get those questions answered,
Greg Corombos: You've provided a ton of great information today, Tim. We always appreciate that. Thank you so much for your time and also for your expertise.
Tim Jensen: Thanks Greg.
Greg Corombos: Tim Jensen is Senior Service Manager at BizFilings. I'm Greg Corombos reporting for Expert Insights. For more information on this subject, please visit bizfilings.com.
