April 23, 2024
By: R. Kymn Harp

The Corporate Transparency Act (“Transparency Act”) is a new federal law that went into effect this year. It applies to most privately held companies, especially those typically used for commercial real estate investment and most small businesses. There are exceptions but they are limited. Failure to comply exposes you to fines and criminal liability, including possible jail time.

The law’s goal is to curtail money laundering and other illegal activities.

Beneficial Owners

Every reporting company must file a written disclosure of all “beneficial owners” having a direct or indirect interest in the company. Beneficial owners are those individuals who (a) exercise “substantial control” over the entity, or (b) own or control at least 25% of the ownership interests in the entity. The form must be electronically filed with the U.S. Treasury’s Financial Crimes and Enforcement Network, abbreviated as FinCEN.

Substantial control

“Substantial control” means any individual who (i) serves as senior officer of a reporting company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board of directors of a reporting company; (iii) directs, determines, or has substantial influence over important decisions made by the reporting company; or (iv) has any other form of substantial control over the reporting company. Examples of individuals who are deemed to exercise “substantial control” are c-suite officers of a corporation; general counsel; managers of a limited liability company, trustees of a trust, and general partners of a limited partnership.

Beneficial Ownership Information Report

Each and every reporting company must file a Beneficial Ownership Information Report containing all necessary information.

In light of the legal exposure to fines and jail time, it is prudent to overreport rather than underreport to assure full compliance with the Law.

Reporting Deadline:

For reporting companies formed prior to January 1 of this year, the reporting deadline is December 31, 2024. For reporting companies formed this year, the reporting deadline is ninety days after formation. For reporting companies formed next year (2025) or after, the reporting deadline is thirty days after formation.  The report needs to be filed only once. But if any of the information in the report changes, the report must be updated.

BOI Report Contents:

Each report must include the individual’s last name (or if the beneficial owner is an entity, the entity’s legal name); first name, date of birth, current residence address, a description and copy of an acceptable form of identification, or the beneficial owner’s unique FinCEN Identifier, which can be obtained online directly from FinCEN.