Many companies must now comply with the beneficial ownership interest (“BOI”) reporting requirements under the federal Corporate Transparency Act (“CTA”), available at https://www.law.cornell.edu/uscode/text/31/5336. The CTA requires nonexempt limited liability companies (“LLCs”), corporations and partnerships to file a report (“BOI Report”) disclosing information on the company and its beneficial owners. Beneficial owners are all of the individuals who 1) directly or indirectly exercise substantial control over the company or 2) own 25 percent or more of the equity in the company.
Nonexempt companies must file their reports timely or face civil and criminal penalties. Missed filings are subject to a penalty of $591 for each late day. Willfully failing to file a BOI Report or willfully providing false information on a BOI Report can result in a criminal fine of up to $10,000 and/or two years imprisonment. Penalties can apply to beneficial owners and/or to the officers of the company, depending on the type of violation.
On March 1, 2024, a federal district court held that the CTA is unconstitutional. The court only enjoined enforcement with respect anyone involved in the case, so the CTA continues to apply for all other companies. The decision is being appealed, but that process will take several years.
Existing Entities
Nonexempt companies formed in 2023 or earlier must file their BOI Report by December 31, 2024. The CTA requires information about the company such as its address and EIN. The company must provide information about each beneficial owner, including an image of their passport or driver’s license.
While there is still some time before the deadline, companies should start to review the filing requirements, and assemble their beneficial owner information. We recommend you consider filing the BOI Report soon, or scheduling it for the Fall so that there is plenty of time before the December 31st deadline should questions arise.
Newly-Formed Entities
For companies formed in 2024, the initial BOI Report is due within 90 days of formation. Beginning in 2025, the report for new entities will be due within 30 days of formation. In addition to the other requirements, newly-formed companies will also need to obtain and report information for up to two “company applicants” or those people who are directly responsible for forming the company with the state. This is typically the attorney and the corporate service provider who file the formation document with the state, and those individuals likely will provide you with a unique FinCEN ID number.
Special Considerations
Individuals who exercise substantial control over a company can include the manager of an LLC, and the shareholders and officers of a corporation (such as the CEO and CFO) and even the directors on the board. Determining beneficial ownership can be tricky if there are multiple tiers of entity ownership between a company and its individual owners. Further, beneficial ownership of a trust’s interest in a company is particularly dependent on the facts and circumstances regarding control by the grantor, the trustee, and/or beneficiaries over the trust.
While there are several exemptions from the BOI reporting obligations under the CTA, the most common exemption for businesses is for large operating companies 1) with at least 20 full time employees, 2) more than $5 million in gross receipts or sales in the prior taxable year, and 3) an office in the United States.
Compliance Options
Many companies can easily prepare and file their own BOI Report online at https://boiefiling.fincen.gov/. Certain corporate service providers are also assisting companies file their BOI Reports for modest fees. In addition, the company’s accountant may also file the BOI Report. Forchelli Deegan Terrana LLP (“FDT”) is also assisting clients with their BOI reporting obligations, especially in terms of examining if an exemption may apply and in situations with complex ownership structures.
If beneficial owners do not want to provide their passport or driver’s license to the company, any person is able to obtain a FinCEN ID number at https://fincenid.fincen.gov/, which can be provided to the company instead.
Changes
Note, after the initial BOI Report, companies must also file an updated BOI Report for any changes to the information on the initial BOI Report, such as changes to the company’s name or address, or to the beneficial owners of the company. Changes requiring an updated BOI Report are discussed more fully at https://www.fincen.gov/boi.
New York State Law
Starting January 1, 2026, limited liability companies (“LLCs”) organized or operating in New York also will have reporting obligations under the NY Transparency Act. The due date of the New York report is within 30 days of formation for LLCs formed after January 1, 2026, and by January 1, 2027 for all other LLCs. The reporting under the New York law will be largely the same as under the CTA, except that a copy of an owner’s passport or driver’s license will not be required. Unlike the CTA, New York requires exempt companies to file a report to claim the exemption. Also, the New York filing is annual, so there are no updated reports required.
Conclusion
If you have questions regarding whether your company is exempt from filing or whether an individual is a beneficial owner, FDT can provide legal advice on how to proceed. We have been closely following the CTA, regulations, and developments in the area. Our prior alert on the CTA is available at https://www.forchellilaw.com/mandatory-ownership-disclosure-for-small-businesses/.
Companies should ensure that their ownership tables are up to date so that the beneficial owners can be determined. We also recommend that companies review and potentially update their operational documents to ensure that all beneficial owners cooperate with the company in providing their personal information. Should you need assistance with CTA compliance or your company’s organizational documents, please contact an attorney in our Corporate Department.