Corporate Transparency Act Beneficial Ownership Information Reporting is now open to business entities formed in U.S.

What Is The Corporate Transparency Act? CTA Explained

The Corporate Transparency Act (CTA) is a U.S federal law that introduces a new compliance burden for U.S. businesses. 

The CTA significantly changes the way small business owners need to manage compliance. On top of new reporting requirements, there are harsh penalties for violating the reporting rules, including large fines and even jail time.

Here were answer all of your questions about the Corporate Transparency Act, like:

What Is The Corporate Transparency Act?

The Corporate Transparency Act (CTA), requires American companies to report ownership information to the U.S. federal government. More specifically, the CTA mandates business entities in the U.S. to disclose details about their ownership to the Financial Crimes Enforcement Network (FinCEN) by filing a Beneficial Ownership Information Report (BOIR)

The CTA and BOIR requirements impact most LLCs and corporations operating in the U.S. Any entity created by filing documents with a Secretary of State’s office in the U.S. becomes a “reporting company” and must file BOIR with FinCEN.

Why Was the Corporate Transparency Act Passed?

Congress passed the Corporate Transparency Act in 2021 as part of the Defense Authorization Act. The CTA aims to fight money laundering, tax evasion, and fraud by targeting anonymous shell companies and exposing their true owners.

FinCEN securely stores Beneficial Ownership Information in a government database. Domestic and foreign law enforcement agencies can gain access to BOI data to aid investigations into financial crimes. 

Banks can also gain access to BOI Reports as part of their customer due diligence procedures. However, a bank or financial institution needs to get permission from the reporting company before they can view its report.

What is a Shell Company?

Simply put, a “shell company” is a business entity that doesn’t actually do anything. Shell companies do not have business operations, and they typically do not own any assets. 

A shell company may hold cash. However, unlike most businesses, shell companies generally do not own property, inventory or equipment. Shell companies often do not have physical offices or employees. 

Shell companies are not inherently wrong or illegal. However, criminals use shell companies as tools to move or hide funds generated through illegal activity, or to avoid paying U.S. taxes. The Corporate Transparency Act aims to expose financial crimes by identifying anonymous shell companies used by bad actors.

Who Is FinCEN?

The Financial Crimes Enforcement Network, or “FinCEN”, is a U.S. government agency whose mission is to fight financial crime at home and abroad. FinCEN is part of the U.S. Treasury Department and works closely with banks and financial institutions to analyze financial transactions and prevent potential crimes. FinCEN also helps both domestic and foreign law enforcement agencies with investigations by sharing financial data and intelligence. 

The Corporate Transparency Act (CTA) tasks FinCEN with collecting Beneficial Ownership Information from U.S. businesses, managing a secure BOI database, and enforcing the reporting requirements . 

What Businesses Need to Comply With the CTA?

Businesses required to comply with the Corporate Transparency Act and BOIR receive the label “reporting companies.” Here is a list of entities considered reporting companies:

  • Limited liability companies (LLCs),
  • Corporations,
  • Limited partnerships (LPs),
  • Series LLCs,
  • Public Benefit Corporations
  • Statutory business trusts,
  • Foreign companies registered in the U.S., and
  • Any entity created by a public filing. 

Any entity created by filing formation documents with a state government is a reporting company under the CTA. This includes nearly all LLCs and corporations in the U.S.

Limited partnerships and certain types of business trusts also become reporting companies if created through a state filing.

Foreign companies formed in other countries also need to complete BOI Reports if they’ve registered to do business in the U.S. by filing documents with a Secretary of State’s office.

Do Sole Proprietorships Need to Comply With the CTA?

No, the CTA does not impact sole proprietorships. This is true if a sole proprietorship does not need to file a formation document in its home state to do business. 

The CTA applies to business entities established by filing formation or registration documents with a Secretary of State’s office. Sole proprietorships are generally able to do business without having to complete any kind of filing. 

Which Businesses Are Exempt from BOIR?

Certain types of businesses can qualify for an exemption from Beneficial Ownership Information Reporting. There are 23 exemption categories for BOI Reporting

Companies that fit into one of these categories do not need to file BOI Reports or update their information with FinCEN. 

Exempt entities are mostly large, publicly traded companies, or businesses operating in highly regulated industries. For example, businesses such as banks, securities issuers, and some accounting firms must already register with FinCEN or another regulatory agency to operate. FinCEN does not require these companies to report Beneficial Ownership Information. 

How Do Businesses Comply with the CTA and BOIR?

U.S. businesses comply with the Corporate Transparency Act (CTA) by submitting a Beneficial Ownership Information Report (BOIR) to the Financial Crimes Enforcement Network (FinCEN). 

Reporting companies need to submit a complete and accurate BOI Report before the state deadlines in order to be compliant with the CTA. Additionally, reporting companies need to keep their information up-to-date by filing Updated BOI Reports whenever any information changes.

Steps to Comply With the Corporate Transparency Act

Follow these steps to ensure that your business complies with the Corporate Transparency Act so that you can avoid penalties:

Step 1: Know Your Reporting Requirements and Deadlines

New companies formed in 2024 must file their BOI Report within 90 days and report all their beneficial owners and company applicants.

Existing companies formed or registered before 2024 have until December 31, 2024, to file and only need to report their beneficial owners.

Step 2: Identify Beneficial Owners & Company Applicants

Beneficial owners are all of the individuals who own at least 25% of the company, or who have “substantial control” over the business. 

Beneficial owners include a company’s major shareholders, but also its senior officers, directors and anyone with influence over important business decisions. 

Company applicants are the individuals who are most responsible for setting up a company. They include the person who files the official documents with the state and the person who directs the formation of the company.

Step 3: Gather Information and ID Documents

For each beneficial owner and company applicant, you need to report their full name, date of birth, residential address, a photo of their ID document, and the unique identifying number from the document.

For the reporting company, gather the full entity name, jurisdiction of formation, principal address in the U.S. and the company’s federal tax ID number. 

Step 4: Submit a BOI Report to FinCEN

Once you’ve identified who you need to report and gathered their information, you can start the BOI Report. You can complete and submit a BOI Report directly with FinCEN through the BOIR  E-Filing system on their website. 

You can also use a filing service, like CTAboi.com, that offers a simpler form to fill out your BOI Report and submit it directly to FinCEN. 

Step 5: Monitor Changes and Update Reports

Keep track of all the information you include in the BOI Report and make sure to update FinCEN whenever any information changes. Updated Reports need to be filed within 30 days of any change.

What are the Deadlines for BOIR?

Companies need to submit their BOI Reports to FinCEN before specific deadlines to comply with the requirements. These deadlines depend on the date when the company was formed:

New Companies Formed in 2024 have 90 Days to File BOIR

If you formed your company on or after January 1, 2024, you have 90 calendar days to submit your BOI Report to FinCEN. The countdown starts after you receive official notice from the Secretary of State that your entity has been formed. 

New Companies Formed in 2025 have 30 Days to File BOIR

New companies being formed in 2025 will have 30 calendar days to submit their BOI Reports to FinCEN. 

Existing Companies Need to File BOIR by December 31, 2024

If you formed your company before January 1, 2024, you need to file the Initial BOI Report by December 31, 2024. Your report will be considered late after this date, and FinCEN can begin to charge you with penalties. 

File Updated Reports Within 30 Days

Your company needs to keep its beneficial ownership information up-to-date with FinCEN at all times. Reporting companies need to submit an Updated BOI Reports within 30 calendar days any time a piece of information changes. 

File Corrected Reports Within 30 Days

FinCEN requires BOI Reports to be complete and accurate in order to be considered compliant. If you find a mistake in a previous BOI Report, you will need to file a corrected report to fix it. 

Corrected BOI Reports need to be submitted no later than 30 calendar days after a mistake is found. 

Penalties for Violating the Corporate Transparency Act

FinCEN can charge business owners with serious civil and criminal penalties for BOI Reporting violations. Here are the quick facts about the penalties for violating the Corporate Transparency Act:

Civil penalties include fines up to $500 per day, per violation.

Reporting companies can be fined $500 per day by FinCEN if they fail to file a BOI Report before the deadline. Additionally, a reporting company can also be fined for failing to update FinCEN when its information changes.

Criminal penalties up to $10,000 in fines and two years in jail. 

Choosing not to comply with the CTA carries criminal penalties, including up to $10,000 and two years in jail. FinCEN can pursue criminal penalties if a reporting company refuses to file a BOI Report by the deadline or files false information on purpose. 

Who Do Penalties Apply To?

Civil and criminal penalties can apply to all of a company’s beneficial owners and senior officers. Additionally, anyone who causes a reporting company to file its BOI Report late, or not at all, can be charged with fines or jail time. 

How Does the Corporate Transparency Act Impact Business Owners?

The Corporate Transparency Act introduces a new level of compliance that average business owners in America have never had to face before. In the past, U.S. business owners typically only had to interact with state governments to do things like form LLCs and corporations, obtain business licenses, and register DBAs. However, the CTA is a federal law that requires businesses to report ownership information to the U.S. government.

Most small business owners do not have much experience with the federal government other than filing U.S. federal tax returns with the IRS. However, as of January 1, 2024, 95% of companies in the U.S. need to be familiar with the FinCEN and Beneficial Ownership Information Reporting.

BOIR is an ongoing compliance requirement for small and medium sized businesses. Companies with multiple beneficial owners may need to appoint a dedicated compliance officer who can identify individuals who need to be reported, complete the BOI report and monitor updates.