Legal Update: The Corporate Transparency Act & Beneficial Ownership Information Reporting

The Corporate Transparency Act and Beneficial Ownership Information Reporting

By Brownlee Whitlow & Praet, PLLC

1. What is it?
   • Beneficial ownership information (BOI) is information about the individuals that own or control a company. While other countries have already adopted BOI reporting requirements, the United States just recently adopted such requirements. The Corporate Transparency Act creates new BOI reporting requirements. Below are some of the high points of the Act.  The new BOI rules purportedly seek to create more transparency and limit bad actors from secretly pulling strings behind the curtains of large corporations. Such regulations put additional burdens on smaller companies and, in the age of constant information leaks, place additional risk on compromising individual privacy.

1. How are BOI reporting requirements changing?
   • The Financial Crimes Enforcement Network (“FinCEN”) will house reported BOI information in a database that became available on January 1, 2024. Any qualifying organization in existence prior to January 1, 2024 is required to submit their beneficial ownership information (BOI) to FinCEN prior to January 1, 2025. Companies created after January 1, 2024, will have 30 days from formation to report beneficial ownership information. 

3. Who is a beneficial owner?
   • An individual who exercises substantial control over a company or owns or controls 25% or more of the ownership interest in the company. There is no limit to the number of individuals who can be reported for exercising substantial control. 
   •  A person exercises substantial control over a reporting company if the individual meets any of the following four (4) general criteria: i) the individual is a senior officer; ii) 0the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; iii)the individual is an important decision-maker; or iv) the individual has any other form of substantial control over the reporting company.
   • A person has an ownership interest in a reporting company if the individual owns or controls at least 25% of the ownership interests of the company.

There are 5 exceptions to the beneficial owner definition: i) Certain minor children; ii) Certain agents who acts solely on behalf of an actual beneficial owner and their nominee, intermediary, agent, proxy or custodian; iii) Certain employees; iv) Inheritance if the individuals only interest in the reporting company is a future interest through an inheritance; or v) Creditors entitled to only payment from the reporting company.

4. What is required to be submitted?
   • The BOI will need to include the individual’s name, date of birth, residential address, and at least one identifying number from an accepted identification document. 
   • A reporting company will have to report its legal name; Any trade names; The current street address of its principal place of business if that address is in the United States (for example, a U.S. reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters); Its jurisdiction of formation or registration; and its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction). They also need to indicate whether it is filing an initial report, or a correction or an update of a prior report.

Failure to satisfy the BOI requirements unless exempt may result in substantial and/or imprisonment.

5. Exemptions
   • Twenty-Three (23) types of entities are exempt from BOI reporting including publicly traded companies meeting certain requirements, certain nonprofits, and entities that qualify as a “large operating company.” Generally, a large operating company is an entity that employs more than 20 full-time employees in the U.S., has an operating presence at a physical office in the U.S., and filed a federal income tax or information return in the U.S. for the previous year showing more than $5,000,000 in gross receipts or sales.
   • Due to the substantial penalties for failure to report we recommend consulting with counsel to determine whether it is exempt from reporting, and if not to ensure reporting is properly and timely completed.

This is not legal advice and should not be relied on as such. You should contact
your legal counsel with your specific facts if you seek legal advice.