Posted on June 17, 2024.

Maybe you have or maybe you haven’t heard about the Corporate Transparency Act.

If you are a current or aspiring business owner, nonprofit founder, or operating your business through a trust, this is for you.

Check out the 5 things you need to know about the Corporate Transparency Act (CTA) aka the new federal reporting law on the block below.

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a new federal reporting law that goes into effect January 1, 2024. Under the CTA, reporting companies are required to file beneficial ownership information (BOI) reports disclosing information on beneficial owners and company applicants.

BOI reports are free to submit online to the Department of Treasury's Financial crimes Enforcement Network (FinCEN). However, failure to submit a required report or submitting false or inaccurate information could result in penalties of $500 per day of noncompliance and criminal penalties of up to 2 years imprisonment and up to $10,000 in fines.

Do not freak out. Keep reading to learn more and avoid the confusion from false information online.

5 Things to Know About the Corporate Transparency Act

#1 A Reporting Company Has a Legal Definition

A reporting company is a legal term for the type of entities that are required to file BOI reports. Simply stated, a reporting company is an entity that is created or formed by filing with the Secretary of State or similar office. According to this definition, LLCs and Corporations are reporting companies. Why? Because they are created by filing with the Secretary of State.

#2 Nonprofits are Reporting Companies

There is false information floating around about nonprofit's reporting obligations and it comes down to misunderstanding the difference between a nonprofit and a tax-exempt entity.

A nonprofit is a corporation that operates for non-profit purposes and may or may not possess IRS 501(c) tax-exempt status.

A tax exempt entity is an entity that has active IRS 501(c) tax-exempt status. Nonprofits are only exempt as a reporting company and therefore, not required to file, only if they have active 501(c) tax-exempt status. Without it, nonprofits are required to file BOI reports because they are in fact a reporting company.

#3 Hiding Your LLC or Corporation in a Trust Will Not Get You Out of Reporting

Again, there has been false information floating around the internet that if your trust owns your business and you own nothing, then you do not have to comply with the reporting requirements because trusts are exempt.

The lie detector test detected that is a lie.

This is one main reason why compliance training over information is necessary.

No matter who owns the LLC or Corporation, if a reporting company exists and none of the 23 exemptions apply, you must file a BOI report. Putting your company in a trust will only increase your costs of maintaining the business, legal fees, and complicate matters if you are not prepared to manage a trust.

Let me state that there are only two types of trusts that are exempt as reporting companies: charitable trusts and split-interest trusts.

#4 Non-Owners Can Be Beneficial Owners

Beneficial owners must be disclosed under the Corporate Transparency Act. Just like reporting companies, beneficial owners is a legal definition that has two specific tests that must be applied to determine exactly who are beneficial owners.

I call these two tests the 25% and substantial control test.

You only need to disclose individuals who own or control 25% or more ownership interests in a reporting company and individuals who, directly or indirectly, exercise substantial control over the reporting company. Under the substantial control test, an individual with no stake in the reporting company could still qualify as a beneficial owner and must be disclosed in your BOI report.

I will break it down like this:

An Owner is not the same as a Beneficial Owner.

It is possible that an Owner is NOT a Beneficial Owner and a Non-Owner IS a Beneficial Owner.

You only need to disclose a Beneficial Owner if one of the five exceptions and special rules do not apply.

#5 This is NOT a One Time Filing

The CTA is dropping more compliance work on the plates of over 33 million companies with ongoing reporting obligations.

There are two types of BOI reports under the CTA: initial reports and updated reports.

Initial reports must be filed by the deadline associated with when your company was or is formed. Check out the graphic for a quick cheatsheet to the deadlines.

For reporting companies created before 2024, you will have until January 1, 2025 to file your initial BOI report.
For reporting companies created in 2024, you will have 90 days to file your initial BOI report after registration is approved.
For reporting companies created after 2024, you will have 30 days to file your initial BOI report after your registration is approved.

I do not want you to be confused by what you may read on the internet or social media. The deadlines above are the final deadlines updated as of November 30, 2023 by FinCEN. FinCEN added more time for companies formed in 2024 to extend a grace period to spread awareness of the new reporting requirements before penalties kick in.

Do not forget this is not a one-time filing. After you file your initial reports, you must file an updated report within 30 days any time information you previously reported changes.

These are the 5 things you need to know about the Corporate Transparency Act. As you can probably tell, there is more to know and understand to fully comply with your new reporting obligations. As a business attorney and a coach for members in my legal membership, I developed a training to break down this law along with checklists and cheatsheets like the one shared in this post to make complying with the CTA stress free.

This is a new law and FinCEN is not done making changes and working out the kinks. You can subscribe to the CTA Newsletter as well as check out the Corporate Transparency Act compliance resources available at www.complywithcta.com.

No matter what: I want to assure you that you can 100% file your own BOI reports.

⚠️ Caution: Watch out for spam solicitations to file your BOI reports. FinCEN will never email you a link to file. All filings must be made through the FinCEN website at www.fincen.gov/boi. Filing is free.

Also, be careful of internet sources. Unfortunately, with a new law, many are not well-versed, including some attorneys and reputable legal sources.

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This blog is for educational and informational purposes only. Nothing included should be considered legal advice. If you would like legal advice, you can schedule an appointment here.

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