Effective January 1, 2024
The US Corporate Transparency Act
Everything You Need to Know
Find out if you have to file with this easy 6-step quiz.
Managing Partner of Anderson Advisors
Overview
What?
The CTA represents the most dramatic increase in required disclosure in the U.S. by business entities in over 20 years.
Who?
If you own, control, or even loan money to an LLC, for-profit Corporation, Limited Partnership, LLP, LLLP, or Statutory trust, you are now required to file a report with the US Financial Crimes Enforcement Network (FinCen) on your company and its owners.
When?
The CTA was passed in 2021. As of January 1, 2024, all business entities will be required to comply with the CTA.
Why?
The failure to file the necessary reporting can result in severe civil and criminal penalties, including fines up to $10,000 and two years in prison.
Important Definitions
Reporting Company
A corporation, LLC, or any business entity that was created with the filing of a document with a secretary of state or any similar office under the law of a State or Indian tride. This includes foreign companies that are registered to do business in the United States. There are 23 exemptions where a company would not have to file a BOI report.
What is NOT considered a Reporting Company?
Beneficial Owner
Any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns and controls at least 25 percent of the ownership interests of such reporting company.
What qualifies as ownership or “substantial control”?
Applicant
This is the individual who directly files, or directs or controls the filing of, the document that creates a domestic reporting company, or that first registers a foreign reporting company. This will include the individual who physically files the documents and the person who directs the individual to file the documents. There can only be two company applicants.
Do you OWN or CONTROL an entity?
BENEFICIAL OWNERS
Who is a Beneficial Owner?
An individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise:
![Corporate Transparency Act Compliance [REDESIGNED VERSION]](https://andersonadvisors.com/wp-content/uploads/2023/11/Green-Check-Mark.svg)
Owns or controls no less than 25 percent of the ownership interests of the entity either individually or aggregated though different business entities, OR
Exercises “substantial control” (an undefined term) over an entity.
Who is NOT a Beneficial Owner?
A minor – however you must provide information on the minor’s parent or guardian;
An agent/nominee/intermediary/custodian of another individual;
An employee of the entity with no control or economic benefits beyond the terms of employment unless that employee is a senior officer (see “What is considered Substantial Control”);
An individual whose only interest is through inheritance; OR
A creditor of the reporting company unless the creditor otherwise meets the definition of “beneficial owner” such as having a loan agreement that gives the creditor the power to direct the affairs of the business.
What Qualifies as Ownership Interest?
Any interest that is held via any of the following in a reporting company:
Equity
View Example
Profit
View Example
Proprietorship
View Example
Convertible interests
View Example
Options
View Example
Indirect ownership through joint ownership
View Example
Ownership through a trust
View Example
Other contract arrangement, understanding, or relationship
View Example
SUBSTANTIAL CONTROL
What is Considered Substantial Control?
The term “substantial control” is not clearly defined, but can include the following:
Service as a senior officer of the reporting company, regardless of title;
Authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body);
Direction, determination, or decision of, or substantial influence over, important matters affecting the reporting company
What is NOT Considered Substantial Control?
Employees or others who work for or represent the company but do not make significant decisions.
Here’s the Info You Need to Report
Each entity must report on itself, beneficial owners and any applicant that registered the entity with the Secretary of State where the entity is organized.
On the Reporting Company:
The full name of the reporting company
Any trade name or ‘‘doing business as’’ name
The business street address of the reporting company
The State or Tribal jurisdiction of formation; or for a foreign reporting company, the State or Tribal jurisdiction where such company first registers
The IRS Taxpayer Identification Number (TIN) (including an EIN of the reporting company, or where a reporting company has not yet been issued a TIN, one of the following: (1) Dun & Bradstreet Data Universal Numbering System (DUNS) number; or (2) Legal Entity Identifier (LEI)
On the Beneficial Owners:
Full legal name
Current residential address as used for tax residency purposes
Date of birth
Unique identification number (from a passport, driver’s license, other state-issued identification, or FinCEN identifier)
Image of the ID
NOTE: If a beneficial owner is an exempt entity, then the reporting company must only report the exempt entity’s name.
On the Applicant:
Full legal name
Current residential address or business address if a third-party service provider
Date of birth
Unique identification number (from a passport, driver’s license, other state-issued identification, or FinCEN identifier)
Image of the ID
Make reporting easier by obtaining a FinCEN ID.
A FinCEN ID is a 12 digit unique identifying number that you can use on your BOI Reports.
FAQs
Do I have to report this information every year?
No, but you must report any change in the required information within 30 days of the change.
Are there any shortcuts to make reporting easier?
Yes. Anderson can help you apply for a unique FinCEN identifier that can be used in lieu of providing all of the information requested by FinCEN on a beneficial owner.
Is this information publicly available?
This is not a public database and the information collected by FinCEN will only be available to:
1. Law enforcement in furtherance of national security, intelligence, or law enforcement activity.
2. US Dept of Treasury can access for purposes of tax administration
3. State, local and tribal law enforcement may access with a subpoena
4. May be shared with foreign countries under certain circumstances and with federal functional regulators or other appropriate regulators upon request and under certain conditions
5. May be disclosed to financial institution with consent of Reporting Company to facilitate financial institution’s compliance with verifying the identity of a customer
If my living trust owns my LLC, who is considered a beneficial owner?
If a living trust or other type of non business trust owns an LLC or different type of business entity:
The Trustee or others with authority to control the trusts assets must be disclosed,
If trust has just one beneficiary, the single beneficiary must be disclosed,
If the trust has more than one beneficiary, then those beneficiaries with the power to withdraw or demand distributions of substantially all of the trust assets must be disclosed, and
If person(s) establishing the trust (grantor/settlor) of the trust can revoke the trust or withdraw assets, the grantor(s) must be disclosed
If I have set up a land trust, do I have to report?
No, land trusts are not filed with a state agency, therefore they are not considered a reporting company.
Does my LLC operating agreement need to be updated to comply with FinCEN?
No, but Anderson recommends that if your LLC has other non-spousal members, the LLC operating agreement be updated to contain provisions obligating members to comply with any reporting requirements under the CTA.
What type of language should I include in my LLC operating agreement to comply with the CTA?
Your operating agreement should include mutual indemnifications for a member’s failure to comply, including who controls disclosure in the event the members disagree, and what the remedies for the LLC and other members will be if a member refuses to comply. Anderson has prepared language for all of its LLCs addressing these and other concerns raised by the CTA.
Can I use bearer shares or membership interests to avoid reporting?
No. The CTA includes a provision prohibiting the issuance of bearer shares or certificates.
If I close down my company, must I notify FinCEN?
Regulations have not been released concerning reporting on closed companies.
What happens if I fail to report?
If a reporting company fails to report, the beneficial owners are subject to civil penalties of up to $500 per day for each day of the violation and criminal penalty of $10,000 and up to 2 years of imprisonment.
What happens if I submit a knowingly false report?
A person who knowingly submits a false report is subject to a civil penalty of $500 per day or each day that the violation continues or has not been remedied; criminal penalty of up to $250,000 or five years’ imprisonment, or both.
When am I required to report?
Entities created before 1-1-2024 – Report by 1-1-2025
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report.
Entities created on or after 1-1-2024, but before 1-1-2025 – Within 90 calendar days of the date of formation
A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
Change in beneficial ownership or reporting company information – Within 30 calendar days of change
Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.
[Updated December 1, 2023]
Are statutory trusts or business trusts reporting companies?
It depends. An entity such as a statutory trust or business trust is a reporting company if it was created or foreign filed by the filing of a document with a secretary of state or similar office. State laws vary on whether trusts require such filing. If it does, then it is a reporting company, unless an exemption applies.
What information will a reporting company have to report about itself?
A reporting company will have to report:
- Legal name;
- Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States, or, a foreign reporting company’s U.S. headquarters);
- Jurisdiction of formation or registration; and
- Taxpayer Identification Number (EIN)
What information will a reporting company have to report about its beneficial owners?
For each individual who is a beneficial owner, a reporting company will have to provide:
- Full legal name;
- Date of birth;
- Residential address; and
- Photo ID (such as a passport or U.S. driver’s license)
- Identifying numner
- Issuing state or jurisdiction
- Image of ID
What are some acceptable forms of identification?
The only acceptable forms of identification are:
- A non-expired U.S. driver’s license (including any driver’s license issued by a commonwealth, territory, or possession of the United States);
- A non-expired identification document issued by a U.S. state or local government, or Indian Tribe;
- A non-expired passport issued by the U.S. government; or
- A non-expired passport issued by a foreign government (only when an individual does not have one of the other three forms of identification listed above).
What are some likely triggers for needing to update a beneficial ownership information report?
The following are some examples of the changes that would require an updated beneficial ownership information report:
- Any change to the information reported for the reporting company, such as registering a new business name.
- A change in beneficial owners, such as a new CEO, a sale that changes who meets the ownership interest threshold of 25 percent, or an owner who is a minor reaching the age o majority.
- Any change to a beneficial owner’s name, address, or unique identifying number previously provided to FinCEN. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.
Examples of When You Must Report
Companies
My company only has a bank/savings/brokerage account
My company that does not hold any assets
It depends. If your LLC has not conducted any business activity or held assets for over 1 year, it is considered dormant and not required to report.
My company is owned 76% by my minor children and 24% by me
It depends. If your LLC has not conducted any business activity or held assets for over 1 year, it is considered dormant and not required to report.
My company was dissolved in year X. Is it required to report the following year?
Under current regulations, the answer is yes if the company held assets or conducted business activity within the last year and does not fall under exemption #23. If the company was dissolved more than a year ago, the company will not have to report.
I own less than 25% of a company but serve as its manager
I loaned money to a company and the terms of the note allow me to convert the debt to equity
My IRA holds more than 25% ownership in an LLC
Yes, the LLC is a reporting company and must report. Also, the IRA is the beneficial owner and, as such, must report on the owner of the IRA because the IRA owner has “Substantial Control” over the IRA. The IRA does not fall under the non-profit exemption.
I have 5 companies that each hold a 20% interest in an LLC
My spouse and I are the managers and members of an LLC
The LLC is required to report, and you and your spouse will be required to report as beneficial owners because your interest is greater than 25%.
I am the manager and my spouse is the 100% member of our LLC
Your LLC is required to report and you as the manager will report as a beneficial owner (substantial control) as will your spouse (greater than 25% ownership).
Trusts
My company is the beneficiary of a land trust that holds real estate
The land trust does not report but the company must report because the land trust is considered an asset.
My company is owned by my joint living trust with my spouse
Yes, your company must report, and you must report on you and your spouse as both the trustees and beneficiaries of your living trusts (beneficial owners).
My Solo 401k is a member is a greater than 25% member in an LLC
Yes, the LLC is a reporting company and must report. Also, the Solo 401k is the beneficial owner and, as such, must report on the trustee of the Solo 401k and the 401k participant. The Solo 401k does not fall under the non-profit exemption.
Non-Profits
My non-profit
My non-profit owns 100% of an LLC
My non-profit owns less than 100% of an LLC
The LLC does not meet the subsidiary exemption of #22 and therefore must report. The beneficial owner, however, needs only list your non-profit and not any of its directors.
Resource Links:
Links to CTA Regulations
FinCEN
Equity
This would include actual ownership of the reporting entity. This can take the form of stock, membership interest, beneficial interest or something similar.
Profit
Includes any non equity interest that entitles the holder of the interest to receive a share of the reporting company’s profit.
Proprietorship
It is the state of being an owner in something.
Convertible Interests
Interests that give a creditor “a right or ability to convert the right to payment of a predetermined sum to any form of ownership interest” are included as control interests.
Options
An agreement or contract giving the holder the right to buy an interest in the reporting company.
Indirect ownership through joint ownership
A situation where a person holds an interest in a reporting company though another entity.
Ownership through a trust
The act of owning an interest in a reporting company as a beneficiary in a trust.
Other contract, arrangement, understanding, or relationship
This is a catch all term to cover any other creative form of reporting company ownership to prevent a person from complying with the CTA.
On the Reporting Company
- The full name of the reporting company;
- Any trade name or ‘‘doing business as’’ name;
- The business street address of the reporting company;
- The State or Tribal jurisdiction of formation; a. or for a foreign reporting company, State, or Tribal jurisdiction where such company first registers
- The IRS Taxpayer Identification Number (TIN) (including an EIN of the reporting company, or where a reporting company has not yet been issued a TIN, one of the following: (1) Dun & Bradstreet Data Universal Numbering System (DUNS) number; or (2) Legal Entity Identifier (LEI).
On the Beneficial Owners
- Full legal name;
- Current residential address as used for tax residency purposes;
- The business street address of the reporting company;
- Date of birth;
- Unique identification number (from a passport, driver’s license, other state-issued identification, or FinCEN identifier);
- Image of the ID
NOTE: If a beneficial owner is an exempt entity, then the reporting company must only report the exempt entity’s name.
What is NOT Considered a Reporting Company?
1. Issuers of securities that are registered or are required to file under the 1934 Act.
2. Governmental authority entities.
3. Banks, as defined in the Federal Deposit Insurance Act, the Investment Company Act or the Investment Advisers Act.
4. Federal and State credit unions as defined in the Federal Credit Union Act.
5. Bank holding companies as defined in the Bank Holding Company Act.
6. Money transmitter businesses registered with the Secretary of Treasury.
7. Broker dealers registered under the 1934 Act.
8. Exchange or clearing agencies as defined under the 1934 Act.
9. Other entities not previously described but registered with the Securities and Exchange Commission under the 1934 Act.
10. Investment companies and their investment advisers.
11. Investment advisers who meet certain criteria.
12. Insurance companies.
13. Licensed insurance producers with operating physical presence in the U.S.
14. Entities registered under the Commodity Exchange Act.
15. Public accounting firms registered under Sarbanes-Oxley.
16. Public utilities.
17. Financial market utilities designated under the Financial Stability Oversight Council.
18. Pooled investment vehicles operated or advised under #3, #4, #7, #10, or #11.
19. Non-profits, charitable trusts, and political organizations, as defined under sections 501(c), 527e(1) or 4947(a)(1) or (2)
20. Entities that provide financial assistance or hold governance rights over entities in #19.
- Operates exclusively to provide financial assistance to, or hold governance rights;
- Is a U.S. person;
- Is beneficially owned or controlled exclusively by one or more U.S. persons who are U.S. citizens or permanent residents (green card).
21. “Large Operating Companies”
- More than 20 full-time employees in the United States;
-
“Full-time employment” as defined by Internal Revenue Service (26 C.F.R. 54.4980H-1(a)(21) and 54.4980H-3z).
- Previous year income tax return of more than 5M in gross receipts or gross sales;
-
Including gross receipts or sales of other entities owned by the entity and other entities through which the entity operates.
- Has operating presence at a physical office within the United States.
- Owned or leased by the reporting company; is not a residence; is not a shared space. A “genuine working office of the entity.”
22. The “subsidiary exemption”: Any corporation, LLC or other similar entity which ownership interests are owned or controlled, directly or indirectly, by one or more entities described in #1, #2, #3, #4, #5, #7, #8, #9, #10, #11, #12, #13, #14, #15, #16, #17, #19, or #21.
23. The “dormant entity” exemption – Any corporation, LLC, or other similar entity that is:
- In existence on or before January 1, 2020.
- Not engaged in active business.
- Not owned by a foreign person.
- No change in ownership for the preceding 12 months.
- Not sent or received funds greater than $1,000 in the preceding 12 months.
- Does not hold any assets, including ownership in other companies.