How the Corporate Transparency Act and the Beneficial Ownership Information Rule Could Affect You

Are you thinking of forming a business entity or already own one? If so, it’s essential to be aware of the Corporate Transparency Act (CTA) and the Beneficial Ownership Information (BOI) Rule. These new regulations aim to enhance transparency and prevent illicit activities like money laundering and fraud. Here’s what you need to know about the Act and the Rule, who they apply to, and important deadlines you shouldn’t miss.

What is the Corporate Transparency Act?

The Corporate Transparency Act is a federal law enacted to combat illegal activities such as money laundering, terrorism financing, and other financial crimes. The Act requires certain business entities to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The goal is to increase transparency and make it harder for individuals to hide their ownership of companies for illicit purposes.

What is the Beneficial Ownership Information Rule?

The Beneficial Ownership Information Rule, issued under the CTA, specifies the reporting requirements for beneficial ownership. A beneficial owner is defined as an individual who, directly or indirectly, owns or controls at least 25% of a company or has substantial control over it. The Rule outlines who must report this information, what information must be reported, and how to submit it to FinCEN.

Who Must Comply?

The CTA and the BOI Rule apply to a broad range of entities, including:

• Corporations
• Limited Liability Companies (LLCs)
• Other similar entities created by filing a document with a Secretary of State or similar office

However, there are exemptions. Entities such as publicly traded companies, financial institutions, and entities already heavily regulated under federal law, like insurance companies and registered investment companies, are typically exempt from these requirements.

Key Reporting Requirements

If your business is subject to the CTA, you must report the following information about each beneficial owner:

• Full legal name
• Date of birth
• Current residential or business street address
• Unique identifying number from an acceptable identification document (such as a passport or driver’s license)

This information must be reported to FinCEN, which will store it securely and make it available only to authorized government authorities and financial institutions for specified purposes.

Filing Deadlines

The deadlines for filing beneficial ownership information vary based on when the entity was created:

• Existing Entities: If your business was formed or registered before January 1, 2022, you must file the required information by January 1, 2024.
• New Entities: If your business is formed or registered after January 1, 2022, you must file the required information within 14 days of formation or registration.

Failure to comply with these reporting requirements can result in significant penalties, including fines and imprisonment.

How to File

Filing your beneficial ownership information with FinCEN involves:

1. Gathering Information: Collect the required information for each beneficial owner of your entity.
2. Submitting Information: Use FinCEN’s online reporting system to submit your information securely.
3. Maintaining Records: Keep records of your submission and any updates. If there are changes in beneficial ownership, you must report these changes within 30 days.

Why It Matters

Understanding and complying with the CTA and the BOI Rule is crucial for business owners. These regulations promote a fair and transparent business environment, helping to prevent financial crimes and protect the integrity of the financial system.

Navigating new regulations like the Corporate Transparency Act and the Beneficial Ownership Information Rule can be daunting, but it’s essential for protecting your business and staying compliant with the law. By understanding who these rules apply to, what’s required, and the filing deadlines, you can ensure your business is on the right track.

Need help with your business compliance? Contact Edwards Law today to ensure your business meets all legal requirements and to get personalized advice tailored to your needs.