A Practical Guide to FinCEN’s New Beneficial Ownership Reporting Rules (CTA)

The Corporate Transparency Act (CTA) now requires businesses to report information about their “beneficial owners” to FinCEN. The term “beneficial owner” isn’t as straightforward as it sounds, covering various individuals who influence or control the business. As a result, this new rule has left many small business owners uncertain about how to comply and avoid penalties. This guide breaks down the essentials to help you meet the filing requirements correctly. 

What is the Corporate Transparency Act (CTA)?

• Overview: The CTA requires certain companies to report their beneficial owners – individuals who directly or indirectly own or control the business –  to FinCEN. This is part of the federal government’s initiative to fight financial crimes like money laundering.
• Deadline: All existing companies must file by January 1, 2025. New companies have 30 days from their formation to submit their beneficial ownership information (BOI) report. 
• Penalties: Failure to comply can lead to fines of $591 per day, with adjustments for inflation. Continued non-compliance may result in larger fines and even criminal charges, including jail time.

Reasons this filing requirement is burdensome for small businesses

• Complexity and Legal Ambiguity: The law is complicated and often unclear. Many experts agree that business owners may struggle to meet the CTA’s requirements. 
• Potential Constitutional Issues: Some courts have raised concerns that the Corporate Transparency Act (CTA) might violate constitutional rights, particularly the right to privacy. Critics argue that requiring companies to disclose detailed ownership information to the government without suspicion of wrongdoing constitutes an invasion of privacy. However, no final decision has been made, and the law remains in effect. Until the courts resolve these issues, businesses must comply to avoid penalties.

Should I file a BOI report even after the new President is elected? 

The Corporate Transparency Act (CTA) became law on January 1, 2021, despite opposition from President Trump, who vetoed it before Congress overrode his decision. Now that Trump has been re-elected, some may wonder if the law will change, given his administration’s past focus on reducing business regulations. However, changing or repealing the CTA would still require action from Congress or FinCEN, and no updates have been announced yet. Until any official changes are made, businesses must comply with the current rules to avoid costly penalties.

Key Questions About the CTA Beneficial Ownership Information (BOI) Filing

What Should Be Included in the BOI report?

• Basic company details (name including any Doing Business As (DBA) names, address, EIN).
• Information about each beneficial owner and company applicant, including:
• Full legal name
• Date of birth
• Address

We strongly recommend entering a FinCEN Identifier (or FinCEN ID) instead of full personal information for each beneficial owner and company applicant. This simplifies future updates and enhances privacy, as we’ll discuss in detail below.

Who Needs to File?

Most small businesses must file if they were formed by submitting official documents and have a separate EIN, including S-corps, C-corps and LLCs. Sole proprietorships are not required to file, according to FinCEN’s BOI FAQ C6.  

FinCEN’s Small Entity Compliance Guide lists 23 exemptions, mostly for regulated entities and large companies with more than 20 full-time employees and over $5 million in gross revenue.

How Do I File?

To file your Beneficial Ownership Information (BOI) report, visit the official FinCEN website at https://www.fincen.gov/boi. The site provides a secure portal for submitting your BOI report, along with detailed instructions and resources to guide you through the process.

Who is a “Beneficial Owner”?

• A beneficial owner is someone who either owns at least 25% of the business or has substantial control over it. This could include people like major shareholders or those making key decisions for the company, such as senior officers.
• FinCEN defines “substantial control” broadly. It includes the power to: 1) Serve as senior officers; 2) Appoint or remove key officers or directors; 3) Make important business or financial decisions; 4) Influence the company’s operations in any significant way. This broad definition aims to track individuals who impact a company’s activities and prevent financial crimes. FinCEN’s BOI FAQ D2&D3 
• Ownership is also broadly defined. It includes both direct and indirect ownership, such as through trusts, contracts, or other arrangements. Individuals who own 25% or more of a company, either outright or through complex structures, must be reported. This ensures that all individuals with significant financial interests are properly identified.
• Special notes about trusts: If a reporting company is owned by a trust, the trust can affect who qualifies as a beneficial owner. Trustees, beneficiaries, grantors, or trust protectors may be considered beneficial owners depending on the specific terms and arrangements of the trust. Each case is determined by its unique facts and circumstances. FinCEN’s BOI FAQ D15

Who is a “Company Applicant”? 

• A company applicant is the person responsible for officially creating the business by filing the necessary paperwork. For example, if your accountant files the documents on your behalf, he would be the company applicant.
• Companies created or registered on or after January 1, 2024, must report at least one, and no more than two, company applicants. Only individuals can be company applicants, not businesses or other entities.
• There are two types of company applicants: the person who files the document and the person who directs or controls the filing. For example, if Individual A prepares the documents and instructs Individual B to submit them, both are company applicants. Individual B, who physically files the document, is the direct filer, while Individual A, who oversees and controls the filing, is also a company applicant. Individual B could be A’s spouse, business partner, attorney, or accountant.

Do I Need a Lawyer to File the Report?

You don’t need a lawyer to file the BOI report, but consulting one is highly recommended. Identifying beneficial owners and company applicants often requires reviewing legal documents like bylaws, employment agreements, and trust documents. A lawyer can help ensure accurate reporting and avoid penalties. However, this article will provide best practices to help you file on your own if you choose to do so.

Should I Work with Accountants or Financial Advisors to File the Report?

CPAs and other non-lawyer advisors can offer some assistance with BOI filings, but there are limits to what they can do. Filing the BOI report often involves interpreting legal documents like trust agreements or bylaws, which falls under the practice of law.

In some states, such as New Jersey and Maryland, CPAs may provide limited help with BOI filings. However, they are required to inform clients that consulting a lawyer is recommended, particularly for complex cases. For instance, the New Jersey Supreme Court’s Committee on the Unauthorized Practice of Law determined that BOI filings are considered legal work. CPAs can assist if they recognize when a filing is complex and advise clients to seek legal counsel when necessary.

Other Important Details You Must Know 

Do I Need to Report Terminated Entities?

• If a company fully ceased to exist before January 1, 2024, it does not need to file a BOI report. To qualify, the company must have completed all steps for formal dissolution, including filing paperwork, paying taxes or fees, liquidating assets, and closing all bank accounts. However, if the company didn’t finish winding up (e.g., kept accounts open or failed to liquidate assets), it must still report its BOI report. FinCEN’s BOI FAQ C13
• For companies created or registered on or after January 1, 2024, BOI reporting is required even if they dissolve before the filing deadline. These companies must file within 30 or 90 days of their creation, depending on the year. Once the initial report is filed and the company dissolves, no further updates are needed. FinCEN’s BOI FAQ C14

When Should the BOI Report Be Updated?

• Any changes to your company’s or its beneficial owners’ information must be reported to FinCEN within 30 days. This includes changes in ownership, control, or updates to a beneficial owner’s name, address, or identification, such as a new driver’s license.
• Failing to update on time can result in civil penalties of up to $591 per day, adjusted annually for inflation. Willful violations may also lead to criminal penalties, including fines of up to $10,000 and up to two years in prison.

What If My Business Doesn’t Have a Physical Address?

• If your business doesn’t have a principal place of business in the U.S., you must report the primary U.S. location where you conduct business. If you work from home, this would be your home address. If your business operates in multiple locations, you can use any U.S. address where you receive important correspondence.
• If your business doesn’t conduct operations at any U.S. location, you should report the address of your registered agent or similar representative designated to accept legal documents. This ensures compliance while acknowledging the lack of a physical business location. FinCEN’s BOI FAQ F12

Who Will Have Access to the BOI Report with My Personal Information?

Access to your beneficial ownership information is restricted to specific entities under the CTA. These include federal agencies involved in national security, intelligence, or law enforcement, as well as state, local, and tribal law enforcement with court approval. The Department of the Treasury, certain foreign authorities (through U.S. federal agencies), and financial institutions may also access this information to comply with due diligence requirements. Additionally, regulators overseeing financial institutions can access it to ensure compliance with these regulations.

The Best Practices for Filing the BOI Report

1. Use FinCEN Identifiers (FinCEN ID) for Company Applicants and Beneficial Owners

• What is a FinCEN Identifier?
  A FinCEN Identifier is a unique number issued by FinCEN that can be used in place of personal details (such as name, address, and date of birth) in your BOI report.
• Why Use It?
  Using FinCEN IDs reduces the burden of repeatedly entering sensitive personal information and simplifies future updates if there are changes in beneficial ownership.
• Actionable Tip: Encourage all company applicants and beneficial owners to obtain their FinCEN IDs. This will streamline your reporting process and enhance privacy. Each person can go to https://fincenid.fincen.gov/ to create a FinCEN ID. 

2. Report Everyone Listed in Company and Trust Documents

• Why Overreporting Is Safer
  If you’re uncertain about who qualifies as a beneficial owner, it’s better to report all individuals named in your bylaws, shareholder agreements, and trust documents. This minimizes the risk of omitting someone and facing penalties.
• Examples of Documents to Review:
• Bylaws
• Operating agreements
• Trust agreements
• Shareholder agreements
• Meeting minutes and resolutions
• Stock ledgers
• Employment agreements
• Actionable Tip: When in doubt, list all parties from your corporate and trust documents to ensure compliance.

3. Update Legal Documents

• Why Updates Are Important
  Outdated corporate and trust documents can lead to confusion and inaccuracies in BOI reporting. Ensuring these documents are up to date helps clarify who the beneficial owners are. This is particularly important when beneficial owners are unwilling to provide personal information or are difficult to contact. Regularly updating these documents ensures compliance and clarity in ownership structures.
• Actionable Tip: Regularly review and update these documents, especially before filing your BOI report, to keep your records accurate and aligned with FinCEN requirements.

4. Get Advice from a Lawyer for Your Specific Situation

• Why Legal Advice Is Crucial
  Every business is unique, and determining who qualifies as a beneficial owner can be complex. A lawyer can review your documents, provide tailored advice, and help you avoid costly mistakes.
• When Should You Consult a Lawyer?
• If your business structure involves trusts or multi-layered ownership.
• If you’re unsure about interpreting the CTA’s requirements.
• If you want to ensure your filings are error-free.
• If you need to update your legal documents to reflect any ownership or control changes. 
• Actionable Tip: While legal fees can be a concern, consulting a lawyer can save you from hefty penalties. If cost is an issue, consider seeking limited-scope legal advice to review only the most critical parts of your filing.

Conclusion 

The CTA’s reporting rules add another task for small business owners, who already have plenty on their plates. Following this new law may seem like a hassle, but it’s the best way to steer clear of costly penalties. We’ve provided clear steps to help you file on your own, but if you need extra guidance, we’re here to support you.