The Corporate Transparency Act beneficial ownership information report

Starting Jan. 1, 2024, the Corporate Transparency Act (CTA) will go into effect.

All entities formed or registered to do business in the United States will need to either (i) confirm they qualify for an exemption from the CTA’s reporting requirements or (ii) timely submit a beneficial ownership information (BOI) report to the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN). All entities means ALL entities.

Entities formed prior to Jan. 1, 2024, do not have to report until Jan. 1, 2025.

Entities formed on or after Jan. 1, 2024, must file the BOI report within 90 days of the entity’s formation.

There are 23 types of entities exempt from reporting, the most common exemption being large operating companies defined as entities with more than 20 full-time employees (no aggregation with affiliated entities), more than $5 million in gross revenue from US sources in the prior year and an operating facility in the US. Other exempt entities include publicly traded companies, banks, insurance companies and other financial institutions, nonprofit entities and certain tax-exempt trusts, i.e., entities already subject to ownership identification reporting requirements.

Assuming that an entity is not exempt from reporting, who does the entity identify on the BOI report? The entity identifies itself and then identifies any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25% of the ownership interests of such reporting company. The definition of substantial control is broad and covers a range of activities, including:

• Being a senior officer in the reporting company
• Having authority over the appointment or removal of senior officers or a majority of the board
• Having “substantial influence over important decisions” of the reporting company
• Having any other form of substantial control over a reporting company

There are limited exceptions as to who qualifies as a beneficial owner: minor children (provided a parent or legal guardian is reported as a beneficial owner); nominees; employees (excluding senior officers); and creditors (but convertible debt is considered in the determination of beneficial ownership).

What beneficial owner identification information is reported? The BOI report provides four pieces of information about each beneficial owner: