Business Owner’s Guide to the Corporate Transparency Act

The Corporate Transparency Act (CTA) took effect in January 2024 and created extensive reporting requirements for small businesses. Under this anti-money laundering law, a reporting company must file a report with the federal government every year and whenever the information surrounding its ownership changes. 

This practical guide outlines everything small businesses need to know about the CTA to ensure compliance. To get help now, use TaxCure to find a licensed tax professional who has experience with business tax issues.

Reporting Companies

The CTA requires reporting companies to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). 

A reporting company is an entity, such as a limited liability company (LLC) or corporation, created by filing documentation with a Secretary of State in any U.S. state. An entity under the jurisdiction of a foreign country is also a reporting company if a U.S. Secretary of State or equivalent office registered it to do business in the United States. 

Not all businesses are reporting companies under the CTA. Exemptions include businesses that are already under regulation by the federal government such as the following:

• Governmental authorities
• Securities reporting issuers
• Banks
• Credit unions
• Depository institution-holding companies
• Money services businesses
• Dealers or brokers in securities
• Securities exchange or clearing agencies
• Exchange Act registered entities
• Financial advisers or investment companies 
• Venture capital fund advisers
• Insurance companies
• State-licensed insurance providers
• Commodity Exchange Act registered entities
• Accounting firms
• Public Utilities
• Financial market utilities
• Pooled investment vehicles

Additionally, tax-exempt and inactive entities may be exempt from filing reports under the CTA. Businesses with over 20 employees and over $5 million in gross receipts (large operating companies) are exempt from filing BOI reports. If you're a sole proprietorship that is not organized as an LLC, you are not considered to be a reporting company for the purposes of this law.

Beneficial Ownership

The CTA requires reporting companies to identify all their beneficial owners. A beneficial owner is someone who owns or controls at least 25% of a business. The class of ownership depends on the entity type. For example, if you own 25% of an LLC’s membership interests, you are a beneficial owner. Similarly, if you own at least 25% of the stock in a corporation, you are a beneficial owner. 

Beneficial ownership can also be indirect. For example, Person A owns 29% of Corporation B. Corporation B owns 25% of the stock in Corporation C. In this case, Person A is a beneficial owner of Corporation C. 

If someone does not own at least 25% of a reporting company, they may still be a beneficial owner if they exercise substantial control over the business. The CTA’s definition of substantial control is broad and includes:

• Senior officers, such as a CEO, COO, CFO, president, or corporate counsel
• Individuals with the authority to appoint or remove senior officers or directors
• Important decision-makers, including those with substantial influence over the company’s business strategies or asset management

The CTA lists several exceptions to beneficial ownership. Reporting companies do not need to list the following individuals on their BOI reports: 

• Minor children (reporting companies must list a parent or guardian of a minor child who is a beneficial owner)
• Nominees, custodians, agents, or intermediaries of beneficial owners
• Employees who are not senior officers
• Inheritors who will become beneficial owners in the future
• Creditors with a security interest in a reporting company’s assets, and the interest is not convertible into an ownership interest

Company Applicants

Under the CTA, reporting companies that are formed after January 1, 2024, must list company applicants in their BOI reports. A company applicant is an individual who files or causes someone to file an application to create a reporting company. A company applicant is also someone who registers a foreign company to do business in the United States. 

Example: Business Owner A instructs their attorney, B, to file Articles of Incorporation with the Secretary of State. In this example, A and B are both company applicants. 

The Beneficial Ownership Information (BOI) Report 

A Beneficial Ownership Information (BOI) report discloses information about a reporting company’s beneficial owners and company applicants to FinCEN. Three BOI report filing methods are available:

• Online via FinCEN’s website
• Electronically by submitting the report in PFD format
• Via a third-party service provider

A BOI report consists of four parts:

Filing Information

In the Filing Information section, you must indicate whether you are submitting the BOI report as:

• An initial report,
• A correction to a prior report,
• An update to a prior report, or
• A newly exempt report.

Reporting companies have a continuing reporting obligation, and each of the above filing types represents a reporting event:

Initial Reporting

All reporting companies must submit an initial BOI report. The deadline for this report depends on the reporting company’s date of formation or registration to do business in the United States. 

If the reporting company was formed or registered before January 1, 2024, the initial BOI report deadline is December 31, 2024. If the company’s formation or registration date is in 2024, the deadline is 90 days from the date of formation or registration. For companies that form after January 1, 2025, the initial BOI reporting period is 30 days. 

Correcting a Prior Report

If a BOI report contains an error or omission, you must file a corrected BOI report within 30 days of discovering the mistake. This deadline also applies from that date a reporting company should have discovered the error or omission but did not.

Updating a Prior Report

Reporting companies must file an updated BOI report whenever there is a change in their beneficial ownership information. This update pertains to changes in beneficial owners’ names, identities, and addresses. For example, if a beneficial owner’s surname and address change after marriage, they must file an updated BOI report. 

The deadline for filing an updated BOI report is 30 days from when you discovered or should have discovered the beneficial ownership information change.

Filing a Newly Exempt Report

If a reporting company becomes exempt from filing BOI reports, the filer must indicate that the submission is for a newly exempt report. For example, if a company employs its 20th employee, it becomes a large operating company and must file a newly exempt report. 

Part 1. Reporting Company Information

Under the Reporting Company section of the BOI report, you must provide the following:

• The reporting company’s legal name and alternate names, such as a trade name or DBA name
• The reporting company’s identification number, for example, a tax or Employer Identification Number (EIN)
• The jurisdiction of the reporting company’s formation and registration
• The reporting company’s principal place of business address in the United States

Part 2. Company Applicant Information

This section must contain the following information about the company applicants:

• Full legal names and dates of birth
• Current addresses
• Forms of identification (along with an upload of the identification image)
• Issuing jurisdiction

A company applicant’s address must be their residential address unless the applicant registered the entity as part of their business operations. For example, suppose the business owner and an attorney are both company applicants. In that case, the BOI report should list the owner’s home and attorney’s business addresses.

Acceptable forms of company applicant identification include:

• State-issued identification cards
• State-issued driver’s licenses
• U.S. passports
• Foreign passports

Part 3. Beneficial Owner Information

The BOI report filer must include the Beneficial Owner Information section for each of the reporting company’s beneficial owners. This section must include all the identification information of the beneficial owners, including their:

• Full legal name
• Date of birth
• Residential address
• Official identification document and issuing jurisdiction

If a beneficial owner is an exempt entity, you must tick the “Exempt entity” checkbox. Additionally, suppose the beneficial owner is a minor child. In that case, indicate that the report contains their parent or guardian’s information using the “Parent/Guardian information instead of a minor child” checkbox. 

Penalties for Non-compliance

Failure to comply with the provisions of the Corporate Transparency Act can result in severe civil and criminal penalties. The civil penalty for failing to correct a mistake or update a BOI report is $500 per day with a $10,000 cap. 

Willful non-compliance in an attempt to hide or commit a crime can result in criminal penalties of up to two years imprisonment or fines up to $10,000. 

Contact a Tax Pro for Help

The reporting requirements of the Corporate Transparency Act increase the administrative burden on small businesses. But you can't ignore the requirement, as failing to comply with this law can result in severe penalties that may impact your business’s financial stability. 

Consulting a legal adviser is the first step towards ensuring compliance if you have never filed a BOI report for your business or plan on forming a new entity. Use our search function to find an attorney, CPA, or enrolled agent in your area. 

Frequently Asked Questions

Can I access the beneficial ownership information of other companies?

The information on reporting companies’ BOI reports is not available to the public. Authorized government departments are the only parties who can access this information to detect, prevent, and prosecute fraudulent activity. 

What steps can I take to ensure my business complies with the CTA?

Monitor FinCEN’s website for CTA guidelines and updates. If you own or control a reporting company, file a BOI report whenever your or other beneficial owners’ information changes. If you have questions about the CTA or your business’s compliance, consult an attorney as soon as possible. 

What are the deadlines for submitting BOI reports under the CTA?

Generally, the deadline for filing a BOI report is within 30 calendar days after discovering a change in your business’s beneficial ownership information. 

Who needs to file a beneficial ownership information report under the CTA?

A reporting company can allow any individual to file a BOI report on its behalf, including an employee, attorney, or one of the beneficial owners. When submitting a BOI report, the filer must provide their personal information, including their name and contact details. 

How much does it cost to file a BOI report?

Reporting companies do not need to pay fees when filing a BOI report. 

Who Is a Beneficial Owner Under the Corporate Transparency Act?

Under the CTA, reporting companies must report information changes of their beneficial owners to the federal government. A beneficial owner is someone who owns at least 25% of or exercises significant control over a reporting business. 

Beneficial ownership can be direct or indirect. Additionally, ownership interest can take the form of equity, stock, a transferable share of an equity security, or a certificate of deposit for an equity security, among others. 

What Is a Beneficial Ownership Information (BOI) Report? 

A BOI report provides information on a reporting company, its beneficial owners, and its company applicants to FinCEN. 

When is the BOI Report Due?

Reporting companies have a continual BOI reporting requirement and must submit this form whenever the information on a prior report is incorrect or outdated. Companies that have never filed a BOI report must submit an initial report before December 31, 2024. 

What Are the Penalties for Failing to Comply with the Corporate Transparency Act?

Failing to comply with the provisions of the CTA can result in severe civil and criminal penalties. The criminal penalties for non-compliance depend on the surrounding circumstances, such as whether a senior officer was willful in their failure to submit a beneficial ownership information report. The government assesses a civil penalty of $500 for each day a prior report update or correction is late, with a maximum penalty of $10,000.

Reporting Company Criteria Under the Corporate Transparency Act

The Corporate Transparency Act applies to active small businesses with fewer than 20 employees and less than $5 million in gross receipts. Businesses that the federal government does not regulate must also comply with the CTA. Entities formed under a foreign country’s law are subject to the CTA if registered to do business in the United States.