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Overview of Corporate Transparency Act's Beneficial Ownership Reporting

Effective January 1, 2024, entities operating in the U.S., both domestic and foreign, will be subject to new reporting obligations concerning their beneficial ownership information (BOI). The Corporate Transparency Act (CTA), enacted by Congress in 2021, mandates this disclosure to the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN).

Who is Affected? Only entities meeting the criteria of a "reporting company" without qualifying for exemptions are required to submit BOI information. Domestic reporting companies include corporations, limited liability companies (LLCs), and entities registered with a secretary of state. Foreign reporting companies are those formed under foreign law but conducting business in any U.S. state.

Entities created or registered after January 1, 2024, must file an initial BOI report within 30 days (with a proposed extension to 90 days). Beneficial owners, defined as individuals with significant control or ownership of at least 25%, must be disclosed. Reports are submitted electronically through FinCEN's BOI E-Filing System, operational since January 1, 2024.

For entities established or registered before January 1, 2024, the initial report deadline is January 1, 2025. Subsequent reports must be filed within 30 days of any ownership changes, and failure to comply may result in civil and criminal penalties.

Exemptions Twenty-three specific entity types are exempt from BOI reporting, primarily those subject to substantial federal reporting requirements (e.g., public companies, banks, securities brokers, insurance companies). A "large operating company" exemption applies to entities with over 20 full-time employees, a U.S. office, and more than USD 5 million in U.S. gross receipts.

Practical Considerations Determining BOI reporting applicability and exemptions requires careful assessment, often involving legal coordination. Entities eligible for exemptions must establish processes for ongoing eligibility assessments. Those subject to reporting must implement procedures to identify beneficial owners, potentially involving a review of legal documents like operating agreements and subscription agreements.

Identification of beneficial owners extends beyond shareholders to include senior officers and key decision-makers. Processes to track changes in leadership or management are crucial for ongoing compliance.

Next Steps The BOI reporting requirements, detailed in Title 31 of the U.S. Code, encompass legal specifications for filing, exemptions, and information to be reported. Companies are advised to proactively engage with legal counsel to assess their obligations under these new rules. Given the legal nature of the determinations, early collaboration with counsel is crucial for a smooth transition to compliance with the BOI reporting regulations.

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