Part 3: Understanding Beneficial Ownership and Reporting Obligations

Defining Beneficial Ownership

Within the intricate web of the Corporate Transparency Act (CTA), understanding the term “beneficial ownership” is paramount. The Act defines a “beneficial owner” as an individual exercising substantial control or holding 25% or more ownership interests in a reporting company. This definition extends beyond traditional roles, encompassing officers, employees, and members of the board of directors. The Act further outlines the nuances of determining ownership interests, considering convertible instruments, contractual voting agreements, and other rights influencing control.

Reporting Procedure and Obligations

Compliance with the CTA involves a careful dance of reporting procedures and ongoing obligations. Reporting companies must file initial reports of Beneficial Ownership Information (BOI) within specific time frames, contingent on their formation date. Reporting companies formed prior to January 1, 2024 are required to file initial reports no later than January 1, 2025. Just this week, FinCEN just revised the 30-day requirement for those formed after January 1, 2024 to 90 days. To streamline this process, FinCEN is in the developmental stages of introducing an electronic database and reporting system known as BOSS.

Continuous obligations extend beyond the initial report, encompassing the responsibility to report changes in beneficial ownership promptly. This ensures that the information remains current and reflective of the dynamic nature of business structures. Additionally, updating personal information within specified time frames is crucial for maintaining compliance with the CTA.

Who Has Access to BOI Reports?

A crucial aspect of CTA compliance involves understanding who has access to the information reported. The Act authorizes FinCEN to disclose BOI information to specific categories of recipients, including U.S. federal, state, local, and tribal government agencies, foreign law enforcement agencies, financial institutions, federal regulators, and the U.S. Department of the Treasury.

However, it’s important to note that disclosure is permitted under specific circumstances, with stringent requirements for agencies engaged in national security, intelligence, and law enforcement activities. Restrictions are in place regarding the use and security of the disclosed information.

Penalties for Noncompliance

Noncompliance with the CTA can have significant consequences. Willingly providing false information or failing to report complete BOI information may result in fines of $500 per day, up to $10,000, and imprisonment for up to two years. Civil and criminal liability can be avoided if an individual rectifies inaccuracies by submitting an updated report within ninety days of the original error, provided the misinformation was not knowingly submitted.

Get Help with CTA Reporting Requirements

As the effective date of the CTA approaches, understanding its intricacies and ensuring compliance become imperative. The complexities of terms like “beneficial owner” and “substantial control” can be daunting, but compliance is crucial for avoiding potential sanctions.

Take Action Today: Reach Out for CTA Compliance Assistance!

Navigating the complexities of the Corporate Transparency Act requires expert guidance. If you have concerns about how the CTA applies to your business, steps needed for compliance, or clarification on reporting requirements, contact our law office. With the law’s effective date just months away, act now to develop a robust CTA compliance strategy tailored to your business needs.

Disclaimer: The information provided in this blog series is for informational purposes only and does not constitute legal advice.

References:

Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77404 (proposed Dec. 16, 2022).

Dave LaChance, Small business group sues over federal ownership database, cites concerns over sharing ‘sensitive’ info, Repairer Driven News (Nov. 17, 2022), https://www.repairerdrivennews.com/2022/11/17/small-business-group-sues-over-federal-ownership-database-cites-concerns-over-sharing-sensitive-info/.

National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, 134 Stat. 3388 (Jan. 1, 2021).

National Small Bus. Ass’n, The Corporate Transparency Act, https://www.nsba.biz/cta (last visited June 27, 2023).

Press Release, U.S. Dep’t of the Treasury, Financial Crimes Enforcement Network, FinCEN Issues Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency (Dec. 7, 2021), https://www.fincen.gov/news/news-releases/fincen-issues-proposed-rule-beneficial-ownership-reporting-counter-illicit.

U.S. Treasury’s Final “Beneficial Ownership” Rule’s Impact Explained, NFIB (Oct. 19, 2022), https://www.nfib.com/content/analysis/national/u-s-treasurys-final-beneficial-ownership-rules-impact-explained/.