Understanding the Corporate Transparency Act & Beneficial Ownership Information Requirements

Written by David J. Neuman, JD Tax & Legal Manager

Starting January 1, 2025, many small businesses will be required to disclose details about their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA) passed in 2021. This regulation aims to help law enforcement combat money laundering and financial fraud by creating a national database of company ownership.

Who Needs to Comply?

The CTA primarily affects both domestic and foreign reporting companies, including LLCs, corporations and similar entities that do business in the US.

Some entities are exempt from these requirements, including regulated businesses like banks, large operating companies with significant domestic presence, and certain inactive entities.

What Information is Required?

Required businesses must report BOI to FinCEN about the individuals who created and ultimately own and/or control them. A beneficial owner is any individual who directly or indirectly:

1. Exercises substantial control over a reporting company (including senior officers or those that have the ability to appoint or remove officers) or
2. Owns or controls at least 25% of the ownership interests of a reporting company (includes equity, stock, voting rights, capital or profit interest, options, etc.)

For each beneficial owner, the following information must be included: full legal name, date of birth, complete current address, and an ID number from a document like a passport, identification document issued by a State, or a State-issued driver’s license.

FinCEN Identifier:

A FinCEN Identifier (ID) is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN.

• An individual or reporting company is not required to obtain a FinCEN ID.
• An individual or reporting company may only receive one FinCEN ID.

A company may include a FinCEN ID in its BOI report instead of certain required information about beneficial owners or company applicants.

For more information on FinCEN ID filing instructions, visit: https://fincenid.fincen.gov/assets/helpContent/FinCEN-ID-Instructions-20240101.pdf.

Filing Deadlines:

• Entities formed before January 1, 2024, must file by December 31, 2024.
• Entities formed after January 1, 2024, have 90 days post-formation to file.
• Entities formed after January 1, 2025, must file within 30 days of creation.

Compliance Penalties:

Failure to comply with the CTA may result in serious consequences, including civil penalties of up to $500 per day for each ongoing violation. Criminal penalties may also be assessed, including imprisonment for up to two years and fines of up to $10,000.

LMC Support and Resources:

To assist businesses with these new requirements, LMC has partnered with a corporate services firm.  In the next few months we will be proactively reaching out to those required to comply with this requirement, guiding them through the process with our corporate services firm partner to discuss how CTA’s reporting requirements apply to them and their business(es).

Update on Regulations:

Recently, on March 1, 2024, the U.S. District Court for the Northern District of Alabama deemed the CTA unconstitutional in a specific case involving members of the National Small Business Association (NSBA). While this ruling introduces uncertainty, given the narrow scope, we expect the federal government to appeal.

This new mandate presents challenges, but with the right preparation and support, businesses can navigate these changes effectively. At LMC, we’re committed to supporting our clients in meeting these new regulatory demands efficiently and accurately.

Where can I find more Information?

Information regarding the BOI reporting requirements can be found at https://www.fincen.gov/boi. We also encourage you to review their Small Entity Compliance Guide and FAQs. These are available at https://www.fincen.gov/boi/small-business-resources.

For any questions regarding the mandatory BOI rules and reporting requirements, contact David J. Neuman, JD, Tax & Legal Manager at dneuman@lmcas.com. If you have questions about our corporate services firm partner or need a direct connection to them, please reach out to Lauren Fuchs, Client Success Lead, at lfuchs@lmcas.com.