Understanding the Corporate Transparency Act: What Business Owners Need to Know

By: Leah J. Bennion, Of Counsel and Leader of Meridian’s Corporate and Securities Division

If you have ownership in a business entity, you may now be required to submit personal information online to the Financial Crimes Enforcement Network, and time is of the essence. This blog post highlights some of the significant points of the new federal Corporate Transparency Act and the requirements for reporting Beneficial Ownership Information for your entity. Note: The best resource for understanding the reporting requirements is the official website of FINCEN: fincen.gov.boi.

What is the Corporate Transparency Act?

In early 2021, Congress passed the federal Corporate Transparency Act into law, which became effective on January 1, 2024. The purpose of the law was to create a national database of individuals to help law enforcement catch bad actors that use shell entities to hide or transfer ill-begotten gains from various illegal activities. Congress has tapped FINCEN (the Financial Crimes Enforcement Network—a division of the U.S. Treasury Department) to create a new, national online database that requires over 30 million state-chartered business entities to report their “Beneficial Ownership Information” (BOI). It is this BOI Reporting requirement that all business owners need to pay close attention to.

Which entities are under the purview of the CTA?

Nearly all businesses that file their corporate charter or other formation documents with the State of Tennessee (or similar agencies in different states) fall within the purview of the CTA and are thus “Reporting Companies.”  If you are a member/owner of an LLC, you will almost certainly be a Reporting Company. There are, however, 23 Reporting Company exemptions, including, but not limited to, banks and credit unions, public utilities, tax-exempt entities, large operating companies, and inactive entities, to name a few. To see if your Company falls within one of these exemptions, look at the “Beneficial Ownership Information Reporting” guide at FinCEN.gov.

When must a Reporting Company file an Initial BOI Report?

Entities formed before January 1, 2024, have until December 31, 2024, to file their initial BOI Report. Entities formed during 2024, however, will only have 90 days from the date of formation to file their initial BOI. The deadline becomes even more aggressive in January 2025, and entities will have only 30 days to file their BOI Report from the date of formation.

What is a Beneficial Owner?

Beneficial Owners are ONLY individuals who 1) own or control at least 25% of the ownership interests of the reporting entity or 2) exercise substantial control over the reporting entities’ business, finances, structure, OR significant decisions. It’s important to note that ownership interests are not isolated to pure equity but include options, warrants, profits interests, any contractual right to establish ownership, voting rights, etc. (as more specifically defined in the FINCEN Guide). You can see a lot of nuance here as to what qualifies as a Beneficial Owner, and the FINCEN guide is a good resource on these points.

What data does the BOI Report include?

The data reported on a BOI Report includes the formation data of the Reporting Entity (i.e., name, DBA, address, state of formation, and EIN), as well as the information about the individuals who are beneficial owners of the Company (i.e., name, DOB, address, and PDF images of their driver’s license/passport). Because you will be required to transmit extremely sensitive personal identifying information, you will want to ensure that you are sharing this information with only 1) a trusted legal advisor or accountant or 2) directly to the FINCEN online database. No other entities or websites will ever need this information and this reporting requirement is ripe for identity theft of the unwary. This information is only submitted through FINCEN’s BOSS database and is not public.

How do I file my BOI Report?

There is NO paper filing option for the BOI Report. The BOI Report is exclusively submitted by filling out the Report directly online or preparing the BOI Report as a PDF, which is then submitted online.

How often must a Reporting Company file a new BOI Report?

An entity may file an initial Report and never file another report. Unlike annual filings with the State, the BOI Report only requires updating when changes occur based on inaccurate information or to update changes to the entity or its beneficial ownership. Should information change, the updated BOI Report must be filed quickly, as corrected reports must be filed no later than 30 days after the entity becomes aware of any mistake or inaccuracy. Additionally, if there are changes to the required information about an entity (state of formation, name, etc.) or to the beneficial ownership (e.g., bankruptcy of a beneficial owner, death of a beneficial owner, an individual’s ownership interest increases past the 25% threshold, to name a few) in the initial Report, or any previous Report, an updated Report must be filed within 30 days of such change.

What are the penalties for non-compliance?

Because this is a mandatory requirement, any entity that falls under the purview of the Act must report BOI or face penalties of up to $591 PER DAY, plus up to $10,000 and even prison time for those individuals who intentionally fail to comply.

Conclusion

The BOI Report is a legal requirement for most legally formed business entities. The timeline for reporting will get increasingly tight, and reporting will be mandatory. Ensure your business is ready to comply with these requirements by reviewing FINCEN’s Small Entity Compliance Guide or by contacting your accountant or our team at (615) 229-7499, by email at info@meridian.law, or through our contact form at www.meridian.law.

Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from Meridian Law, PLLC, or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.