SMALL BUSINESS ALERT: New Ownership Reporting Requirements Under the Corporate Transparency Act to Take Effect in 2024

Jared Hernandez and Darren Seward contributed to this article.

Kayla M. Kuri

The Corporate Transparency Act (“CTA”) was enacted in 2021 with the aim of combating money laundering, fraud, and other illegal activities by requiring certain small businesses to disclose personal information regarding their “beneficial owners” to the Financial Crimes Enforcement Network (“FinCEN”). The CTA is set to take effect on January 1, 2024, and millions of U.S. and foreign companies will be impacted by the new reporting requirements, particularly small businesses. It is imperative that those that own or serve in senior management roles of companies be aware of and plan to comply with the new law and its requirements, which can be complex and difficult to navigate.

What companies are required to report?

Only companies that qualify as “reporting companies” are subject to the CTA’s reporting requirements. “Reporting companies” include all domestic corporations, limited liability companies, or similar entities created by the filing of a document with any U.S. state or Indian tribe AND any non-U.S. entity that has registered to do business in any U.S. state or Indian tribe. Each company that meets the definition of “reporting company” is required to file a Beneficial Ownership Information (“BOI”) Report with FinCEN unless it qualifies for one of the 23 available exemptions. These exemptions tend to apply to larger or more heavily regulated entities, including:

• “Large operating companies,” which are companies that (i) have more than 20 full-time U.S. employees, (ii) reported more than $5 million in revenue from U.S. sources to the IRS for the previous year and (iii) have an operating presence at a physical location in the U.S.
• Public companies
• Banks and credit unions
• Insurance companies
• Governmental entities
• Non-profit entities
• Certain other entities already subject to regulatory oversight

What information is required to be reported?

BOI Reports filed with FinCEN must include the following information about the company, its “beneficial owners”, and its “company applicants”:

Company Information

• Legal name and any “doing business as” names
• Address of principal place of business
• Jurisdiction of incorporation/formation
• Initial registration in the U.S. (for foreign companies)
• Taxpayer Identification Number

“Beneficial Owners” and “Company Applicant” Information

• Legal name
• Date of Birth
• Residential address
• Passport or driver’s license number (with a photocopy of such document)

Who is considered a “beneficial owner” and “company applicant” for reporting purposes?

A “beneficial owner” is any individual who, directly or indirectly, exercises “substantial control” over the reporting company OR who owns or controls at least 25% of the ownership interests in a reporting company. An individual exercises “substantial control” over a reporting company if that individual serves as a senior officer of the reporting company or directs or has substantial influence over important company decisions. “Ownership interests” in a reporting company includes stock and other equity interests; capital or profit interests; instruments convertible into stock or other equity interests; puts, calls, or options; and other similar instruments, contracts, arrangements or understandings regarding ownership.

A “company applicant” is the individual who directly files the document that creates the domestic reporting company and the individual who is primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document. Companies that are formed prior to January 1, 2024 will not be required to provide information regarding their company applicants, but all newly formed companies will be required to provide such information.

When are the reports required to be filed?

All reporting companies created before January 1, 2024 are required to file their initial BOI Reports no later than January 1, 2025. Companies formed between January 1, 2024 and December 31, 2024 are required to file their initial BOI report within 90 days of formation, and all companies formed on or after January 1, 2025 will have 30 days after formation to file their report.

If there is any change in the information previously reported about the reporting company or its beneficial owners, the reporting company must file an updated report within 30 days of the change.

Where do you file the reports?

All BOI Reports are required to be filed with FinCEN via an online filing system located on FinCEN’s website. There are no fees for filing the reports.

Are there penalties for not filing?

There are both civil and criminal penalties under the CTA for willfully failing to report or update a reporting company’s BOI and providing false or fraudulent information in a BOI report. Civil penalties include a daily $500 fine until the violation is cured, up to a maximum of $10,000. Criminal penalties include up to two years’ imprisonment.

What should companies be doing right now to prepare for the CTA?

If you believe you may be a “reporting company” under the CTA, you need to implement a plan to file your initial BOI Report, and a procedure to make sure updated reports are timely filed. If you have questions about the implications of the CTA and reporting obligations, please reach out to Kayla Kuri at kmkuri@phillipsmurrah.com, Josh Edwards at jledwards@phillipsmurrah.com, or your regular Phillips Murrah contact.