Understanding the Corporate Transparency Act: A Guide for Businesses and Financial Institutions

Following a ruling by a federal district court in Texas, the enforcement of the Corporate Transparency Act (CTA) and beneficial ownership information (BOI) reporting requirements are suspended as of Dec. 3, 2024. Businesses may consider preparing BOI reports—even though they have no current obligation—as a precautionary measure.

The federal government has already filed an appeal, and this is a developing situation. As a result, we strongly suggest monitoring for any new updates.

The Corporate Transparency Act has become a game-changer in the fight against financial crimes. It aims to bring much-needed transparency to the world of corporate ownership, making it harder for criminals to hide behind shell companies. By understanding the act, businesses can contribute to a more secure and accountable financial ecosystem.

Navigating the Corporate Transparency Act

The Corporate Transparency Act was enacted to deter financial crimes by asking businesses to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). 

The aim of the act

The driving force behind the Corporate Transparency Act is the prevention of financial crimes, such as money laundering and terrorism financing. 

The act applies to both domestic reporting companies and foreign reporting companies, including foreign-owned businesses registered to conduct business in the United States, helping to ensure a comprehensive approach to tackling financial crimes.

Who falls under the act's purview?

The act primarily targets U.S. corporations and LLCs, which are asked to report their beneficial ownership information to FinCEN. However, not all business entities are subject to the act. Sole proprietorships and most general partnerships, for instance, are exempt.

Exemptions from the act

Under the Corporate Transparency Act, there are 23 exemptions that aim to exclude entities with a low risk of involvement in financial crimes from the reporting requirements. One notable exemption is the “large operating company” exemption, which applies to corporations or limited liability companies (LLCs) that meet the following criteria, ensuring they already have substantial control in place:

• Have more than 20 full-time employees
• Have gross receipts in excess of $5 million
• Have an established operating presence at a physical office within the U.S.

Filing your voluntary Beneficial Ownership Information Report

Companies can file their initial BOI reports electronically with FinCEN.

Submission process

Submitting your initial BOI report is a straightforward process that involves filing the report through FinCEN’s online system. There are no fees associated with submitting the BOI report, making it accessible for businesses of all sizes.

What information does the BOI report ask for?

The BOI report requests two main categories of information: company details and beneficial owner information. 

Company details

In your BOI report, you'll provide the following company details:

• Legal name
• Address
• Jurisdiction of formation
• Taxpayer identification number

Identifying beneficial owners

Beneficial owner information includes:

• Legal name
• Date of birth
• Home address
• Identifying number from a government-issued document

Privacy and access: Who can view your BOI reports?

BOI reports are not public documents, and access to them is limited to authorized requestors. FinCEN is responsible for implementing protocols to safeguard the reported information and ensure that only authorized users can access it for authorized purposes.

Knowing who can access your BOI reports is key to protecting your company’s privacy.

Authorized requestors

Authorized requestors include law enforcement agencies, the Treasury Department, and financial institutions with the reporting company’s consent. These authorized requestors can access BOI reports to support their efforts in combating financial crimes.

Safeguarding Information

FinCEN is responsible for implementing safeguard protocols to protect the reported information from unauthorized access. These protocols include creating a secure system for storing the information and establishing procedures to ensure that only approved users can access the information for approved purposes.

FAQs

What is the main purpose of the Corporate Transparency Act?

The main purpose of the Corporate Transparency Act is to promote transparency in entity structures and ownership, thereby enabling law enforcement agencies to combat money laundering, tax fraud, and other illicit activities. It is designed to capture more information about the ownership of specific entities operating in or accessing the U.S. market.

What is the Corporate Transparency Act 2024?

The Corporate Transparency Act of 2024 is a federal initiative to limit money laundering.

What information does a BOI report ask for?

If you voluntarily file a BOI report, you will be asked for information about the company, such as its legal name, address, and jurisdiction of formation, as well as PII (Personally Identifiable Information) of each beneficial owner, including their legal name, birthdate, home address, and an identifying document and corresponding image.