17 Answers to Your Corporate Transparency Act Questions

The Corporate Transparency Act’s Beneficial Ownership Information (BOI) Reporting Requirements 

Updated: March 26, 2024

Update: The Corporate Transparency Act’s (CTA) Constitutionality Challenge

While there have been many headlines talking about how the CTA was found to be unconstitutional, it’s important to understand the context surrounding this decision and its impact on Florida business owners.

In NSBA vs. Yellen, the CTA was challenged by the National Small Business Association (NSBA), an advocacy group based out of Ohio, and Alabama real estate agent Isaac Winkles. The court sided with the Winkles and the NSBA, determining that the law is unconstitutional due to congressional overreach. This resulted in a pause on filing requirements for the Plaintiffs in this case only.

FinCEN will otherwise continue their enforcement efforts against individuals and entities that fail to comply with the CTA. In other words, Florida business owners won’t be able to take advantage of this ruling unless they were already members of the NSBA before the court issued its decision on March 1, 2024.

The United States Department of Justice (DoJ) has already filed their appeal disputing the judge’s decision. Keep in mind that there will likely be some back-and-forth between the judiciary and the legislature as the law continues to be finalized. Be sure to check back here for more updates.

The Corporate Transparency Act

Florida business owners only have a handful of months left to get ready for the Corporate Transparency Act. This law creates new reporting requirements that most businesses will need to adhere to starting on January 1st, 2024. The penalties for noncompliance are significant and should be avoided at all costs, so it’s important to familiarize yourself with what we know so far. 

For more help, check out our DIY BOI Filing Guide available through our Knowledge Base.

1. What Is the Corporate Transparency Act? 

Passed in 2021, the Corporate Transparency Act establishes new reporting requirements for Beneficial Ownership Information, or BOI. Once the law takes effect, qualifying companies (known as “reporting companies”) will need to file that information with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Although its aims are largely altruistic, the responsibilities that it creates for business owners are sure to lead to stress and headaches, especially for those who wait until the last minute to file their reports.

2. Why Was the Corporate Transparency Act Passed? 

Included as a part of 2021’s National Defense Authorization Act, the driving purpose of The Corporate Transparency Act is to combat corruption and financial crimes both domestically and internationally. Its primary targets are shell companies and other entities with little or no actual operations that could be used to cover up or fund illicit activities ranging from money laundering to terrorism.

3. When Will My Company Need to File Its Initial Report? 

The due date of your company’s Beneficial Ownership Information report depends on when your business was formed. Reporting companies registered before January 1st, 2024 will need to submit their initial reports no later than January 1, 2025. Those formed after January 1, 2025, on the other hand, only have 30 calendar days after their creation to file.  

Reporting companies formed between those two dates, however, will have 90 calendar days to file their initial report. This deadline will begin with whichever date comes first: either when the company first gets notice that their registration or formation is officially effective, or after the appropriate state official or agency provides notice to the public of its registration or formation.

4. What Are the Penalties for Non-Compliance With the Corporate Transparency Act?

Filing a report with Beneficial Ownership Information that you know to be false and not filing at all both come with the same penalty: a $10,000 fine and/or up to two years in prison. However, there will be no punishment for companies that file corrected reports within 90 days of submitting incorrect information.

5. What is a Reporting Company? 

Reporting companies are defined as “certain types of corporations, limited liability companies (LLCs), and other similar entities created in or registered to do business in the United States.” While some companies will be exempt from the Corporate Transparency Act’s reporting requirements, it appears that the majority of small businesses will fall under its mandate. Mom-and-pop-stores, independent contractors, LLCs, and others will all have to file unless they fall under one of the exemptions listed in Section 7.

6. What is a Beneficial Owner? 

Under the Corporate Transparency Act, a beneficial owner is any individual who either directly or indirectly:

• Owns or controls no less than 25 percent equity in the company, or

• Exercises a substantial degree of control over the business through either de jour or de facto authority, which the final rule defines as:
  • Service as a senior officer of a reporting company
  • Having the authority to appoint or remove certain individuals, or
  • Directing, determining, or having significant influence over the reporting company’s decisions relating to business, finances, and/or structure
• For further information and clarification, visit FinCEN’s FAQ by clicking this link

Companies formed after January 1st, 2024, must also provide the same information about the company’s applicants. An applicant is any individual who files creation documents for a company or who’s primarily responsible for directing or controlling said filing. Unlike beneficial owners, changes to applicant information do not need to be updated with FinCEN. 

7. Are There Any Exemptions Under the Corporate Transparency Act?

Some companies are exempt from reporting Beneficial Ownership Information under the Corporate Transparency Act. There are a total of 23 available exemptions, some of which include:

• Large operating companies, defined as businesses that:
  • Employ 20 or more people on a full-time basis
  • Have more than $5 million in gross receipts or sales, and
  • Have an operating presence at a physical office within the United States.

• Subsidiaries that are wholly owned by exempt companies.

• Non-profit organizations

• Companies in industries that already require reporting Beneficial Ownership Information

• Pooled investment vehicles operated by investment advisors

• Government Entities

The Corporate Transparency Act also allows the following beneficial owners to forgo reporting their information:

• Minors, although a parent or guardian’s information must be sent in their place

• Individuals acting as an intermediary or as an agent on someone else’s behalf

• Individuals whose control over a reporting company is determined solely from their employment

• Creditors for reporting companies, unless they only qualify through substantial control or equity ownership

More information about exemptions from the Corporate Transparency Act’s Beneficial Ownership Information reporting requirements as well as a comprehensive list of exempt entities can be found on FinCEN’s website.

8. What Kind of Information Will Be Asked for in the Beneficial Ownership Information (BOI) Form?

Beneficial owners are required to submit personally identifying information to FinCEN, which will be used to confirm that their business is a legitimate enterprise. This information will include their:

• Name

• Date of birth

• Residential street address, and

• A unique identifying number from a document such as a driver’s license or passport, along with the state or jurisdiction that document was issued by.

The beneficial owners will need to also file information about their associated reporting company such as its:

• Legal name

• Tax ID number

• DBA or alternative names, if applicable

• Place of formation, and

• Current U.S. address

Below you can find a reusable .pdf provided by FinCEN that you can use to file your reporting company’s initial BOI report.

9. Are There Any Alternatives to Reporting Beneficial Ownership Information?

The Corporate Transparency Act also establishes a way for Beneficial Owners to obtain a FinCEN identifier that can be used as a substitution for some of the required information under specific circumstances. While this won’t provide any sort of anonymity regarding government agencies, it can be potentially preferable from a cybersecurity perspective. This is because, by working directly with FinCEN, the Beneficial Owner’s information won’t need to be handed off to any third parties or go through any unsecured networks that could compromise their information.

10. How Do I Report My Company’s Beneficial Ownership Information?

Reporting companies will be able to file online using a to-be-determined system and form. They can also hire a third party, such as a law firm, to file on their behalf. However, parent companies cannot file a single report on behalf of themselves and their subsidiaries. As a reminder, the mock-up available above is based on preliminary information, and is only provided to demonstrate the type of questions that will need to be answered.

11. How Will FinCEN Keep My Beneficial Ownership Information Safe?

Because of the personal nature of the information contained in BOI reports, it’s understandable that business owners who value their privacy and security might be worried about what will be done with these filings. In addition to other measures still in the planning stages, FinCEN plans on storing BOI reports in a confidential database not available to the public, although hacks and data breaches are always a possibility.

Federal, State, local, Tribal, and qualifying foreign officials will be able to access BOI as a part of national security, intelligence, and law enforcement matters. Financial institutions and their regulators will also be able to access this data with the reporting company’s consent under certain circumstances.

12. What Should Be Done if There Are Changes to a Company’s Exemption Status or Beneficial Owners?

Companies have 30 calendar days to report changes to exemption status after filing their initial report, whether that status is lost or gained. If there are changes to a company’s beneficial ownership after its initial filing, however, then it has one year to file a new report reflecting these updates.

13. How Will This Impact My Business?

While the full impact of the Corporate Transparency Act’s requirements for business owners can’t be known for sure just yet, some anticipated effects and potential burdens include:

• Compliance and Reporting Obligations: Complying with the new requirements to collect, maintain, and report information will take notable effort on the part of the reporting company, and may call for updating internal processes, systems, and policies.

• Financial Costs: FinCEN estimates that businesses could need to spend anywhere from $85.14 to as much as $2,614.87 to stay compliant, depending on the complexity of their operations.

• Time Costs: Reporting companies should be sure to allocate enough time to collect and file their information. Again depending on the business’s complexity, FinCEN expects the initial filing to take between an hour and a half to ten hours to compile and complete, while corrected filings will likely take between an average of 40 minutes to almost three hours.

• Enhanced Transparency: The Corporate Transparency Act is likely an end to privacy as we know it for certain entities, which will be a harsh blow to business owners who wish to stay anonymous for entirely legitimate and legal reasons. It could even invite increased scrutiny from law enforcement agencies, financial institutions, and others.

• More Secure Relationships: If the Corporate Transparency Act is successful in its aims at deterring financial crimes and illicit activities, then it could lead to better, more secure, and more reliable relationships between legitimate business entities. It could also make the overall business environment in the United States safer and more trustworthy by reducing the risk of associating with money launderers or other nefarious parties.

• Reputational Benefits: Companies that comply with the new regulations may experience a boost to their reputation, as it demonstrates their commitment to transparency and corporate responsibility. This could improve their standing with customers, investors, and partners.

Although it looks like the benefits might outweigh the costs from a big-picture perspective, the burdens that this will place on small business owners and entrepreneurs on an individual level should not be underestimated. Because the efficacy of the law against criminal elements has also yet to be seen, however, it’s hard to tell if the weight of these new responsibilities will truly be worth it.

14. What Can Law Firms Do To Stay Compliant With the CTA?

Because many law firms work closely with companies falling under the purview of the Corporate Transparency Act, they will need to learn everything they can about its requirements in order to provide their clients with the best support possible and help them navigate their new responsibilities. To ensure their clients stay compliant with the new regulations, law firms should take the following steps:

• Learn About New Regulations: As they will be looked to as an authority on this matter, law firms should start familiarizing themselves with the Corporate Transparency Act right away to ensure that they are able to help their clients navigate its rules and responsibilities while staying compliant with its regulations.

• Update Internal Processes: Law firms may need to update their internal processes and systems to effectively advise and assist their clients in complying with the new regulations. This could include developing new procedures for collecting, verifying, and protecting beneficial ownership information.

• Determine if New Rules Apply to Your Law Firm: According to FinCEN, lawyers generally won’t be included as beneficial owners, but this will ultimately depend on the nature of their work. They may also qualify for the “nominee, intermediary, custodian, or agent” exception. However, FinCEN considers the general counsel of a reporting company to be a “senior officer,” which makes them a beneficial owner as well. Applicant status should be similarly investigated and considered.

• Train Legal Staff: It’s also essential that all attorneys and other legal staff are trained and educated on the law so that they can accurately guide clients through the process.

• Communicate With Clients: Law firms should proactively inform their clients about the Corporate Transparency Act’s upcoming Beneficial Ownership Information reporting requirements to help ensure that they stay compliant with the law.

• Assist With Compliance: In addition to informing their clients about the Corporate Transparency Act, law firms might also consider incorporating it into their compliance and filing services.

• Monitor Regulatory Updates: It should go without saying that law firms have a duty to stay up to date on developing legal matters within their practice areas. For example, our firm has been closely monitoring the development of this law over the last few months so that we can provide you with the most current information possible.

15. How Will This Impact Business Formation Services?

Firms that provide business formation services – such as our own – will also have their own unique impacts resulting from the Corporate Transparency Act that they will have to contend with, including:

• Compliance and Reporting Support: Companies that were formed using another firm’s business formation services may need a little extra assistance when it’s time to file their reports. Those firms should be prepared to help their past clients navigate the process while staying compliant. However, if it’s a non-attorney firm, then they may want to consider reaching out for legal assistance and guidance themselves, as misunderstandings can lead to fines and even prison time.

• Increased Due Diligence: Formation service providers may need to conduct enhanced due diligence on their clients to verify that they are accurately identifying beneficial owners and company applicants. After all, it’s possible that they could qualify as a company applicant for the entities they help establish.

• Changes in Demand: The Corporate Transparency Act’s impending reporting requirements could very well affect the popularity of business formation services, although it’s hard to predict whether that impact will be positive or negative. Although there could be a dip in demand as corporate anonymity becomes a thing of the past, it’s entirely possible that those losses could be made up for with clients seeking professional support and expertise.

16. What Steps Should My Business Take To Prepare?

To prepare for the Beneficial Ownership Information reporting requirements under the Corporate Transparency Act, review your corporate documents and make sure you have proper corporate documentation in place so that there is no dispute later to who the beneficial owners of the company are. We find that many businesses do not have proper documentation in place relating to ownership of their companies, which frequently leads to dispute. Now with this additional requirement, providing false or disputed ownership information could lead to serious fines and criminal penalties. Be sure to review FinCEN’s Small Business Compliance guide as well. If you need assistance with corporate housekeeping for your company, please click this link to schedule a consultation with our attorney to discuss your business legal needs.

17. How Can FL Patel Law PLLC Help My Business With the Corporate Transparency Act?

Our firm prides itself on offering comprehensive services to our clients, and helping them with the Corporate Transparency Act’s Beneficial Ownership Information reporting requirements is no exception. At this point, we’re offering consultations to help guide our clients through its mandates while also considering what other services we could provide, so stay tuned for more updates.

This information is a summary meant for general information and discussion purposes only and may be considered an advertisement for certain purposes. It is based on the information available to us at this point in time and, as such, is not a full analysis, may not be relied upon as legal advice, and does not claim to represent the views of our clients or FL Patel Law PLLC. The views expressed herein are solely those of the author unless otherwise noted.

For attorney assistance with Beneficial Ownership Information (BOI) reporting compliance under the Corporate Transparency Act, call our offices for a consultation at (727) 279-5037 or schedule a consultation with us online. 

Screen capture from FinCEN’s website.