The Corporate Transparency Act (CTA), which became effective on January 1, 2024, requires many limited liability companies, corporations and other entities created or registered in any state of the United States, as well as foreign limited liability companies registered in any state of the United States, to file a beneficial ownership information report (BOI Report) with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), unless the entity qualifies for an exemption.
Although the CTA has 23 exemptions, they generally apply to companies already filing reports with the federal government that name beneficial owners, such as publicly traded companies and other entities registered with the Securities and Exchange Commission, or companies in heavily regulated industries such as financial institutions, public utilities, public accounting firms and insurance companies. A “large operating company” exemption, however, applies to privately held companies that are not necessarily already reporting beneficial ownership information or in a regulated industry. The large operating company exemption is discussed in detail below.
Impact on Small Businesses
With certain exceptions, the BOI Report rules apply to businesses that employ 20 or fewer persons in the United States and/or reported gross receipts and sales of $5 million or less on the previous year’s federal income tax filings. Reporting companies created or registered to do business in the United States before January 1, 2024 must file their initial BOI Reports by January 1, 2025. Reporting companies created or registered on or after January 1, 2024 have 90 days after receiving notice of their company’s creation or registration to file their initial BOI Reports.
Information to be Reported
A. Information about the reporting company
- Full legal name, including any trade name or “doing business as” (DBA) name
- Complete current United States address
- State, Tribal or foreign jurisdiction of formation or registration
- IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN))
B. Information about the individuals filing and controlling the filing of the formation or registration document
Reporting companies created or registered after January 1, 2024 must provide information about the individual that filed the formation or registration document as well as information about the individual that controlled the filing of such document. Each of these individuals are referred to in the CTA as a Company Applicant. A reporting company created or registered after January 1, 2024 must identify at least one, and no more than two, Company Applicants when filing the reporting company’s initial BOI Report. The individual’s full legal name, date of birth, complete current business or residential address and a unique identifying number from an acceptable identification document (such as a driver’s license or a passport), as well as a copy of such identification document, must be furnished. In lieu of an identification document, a Company Applicant may provide a unique identifier assigned by FinCEN.
C. Information about each Beneficial Owner
The individual’s full legal name, date of birth, complete current residential address and a unique identifying number from an acceptable identification document (such as a driver’s license or a passport), as well as a copy of such identification document, must be furnished. In lieu of an identification documentation, a Beneficial Owner may provide a unique identification number assigned by FinCEN.
Beneficial Owners
The BOI Report must identify the reporting company’s Beneficial Owners. A “Beneficial Owner” is an individual who, directly or indirectly, either (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25 percent of its ownership interests. An “ownership interest” includes an equity interest in an entity, such as shares of corporate stock of a corporation or a capital or profit interest in a limited liability company or limited partnership; voting rights with respect to an entity; any instrument convertible into any of the foregoing interests; an option or privilege to buy or sell any of the foregoing interests without an obligation to do so; and any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.
An individual exercises “substantial control” if they satisfy any of the following four factors:
- The individual is a senior officer;
- The individual has authority to appoint or remove certain officers or a majority of directors of the company;
- The individual is an important decision-maker; or
- The individual has any other form of substantial control over the company.
The current CTA regulations lack clear criteria for determining “substantial control”. Therefore, determining “substantial control” for purposes of the CTA reporting requirements is a highly fact-specific undertaking and entities should seek legal counsel for precise evaluations regarding “substantial control” and Beneficial Owners. FinCEN is expected to issue additional guidance in the future. However, prior to the issuance of additional guidance, we advise entities filing a BOI Report to be inclusive. There is no penalty for over-reporting Beneficial Owners.
The Large Operating Company Exemption
As noted above, there is an exemption from the reporting rules for “large operating companies”. Generally, an entity may qualify for this exemption if all of the following three conditions are satisfied:
- Number of employees. In general, the entity must have at least 20 full-time employees in the United States. For purposes of the CTA, a full-time employee generally means an individual who is employed an average of at least 30 hours per week or 130 hours per calendar month. Consolidated employee headcounts across affiliated entities are not permitted.
- Presence within the United States. The entity must regularly conduct its business at a physical office owned or leased by the entity within the United States that is physically distinct from the place of business of any other unaffiliated entity.
- Gross receipts or sales. The entity must have filed a Federal income tax return or information return in the United States for the previous year demonstrating at least $5,000,000 in gross receipts or sales, excluding amounts from sources outside the United States. Among other things, this requirement means that newly formed entities cannot qualify for this exemption.
The Subsidiary Exemption
There is also an exemption for subsidiaries of certain exempt entities, including subsidiaries of large operating companies. A subsidiary would qualify for this exemption if its ownership interests are controlled or wholly owned, directly or indirectly, by a large operating company.
Timing
The reporting deadline depends on when the reporting company was established and assuming no exemption applies:
| Entity Type | Filing Requirement Date |
| Domestic company created between January 1, 2024 and December 31, 2024 Foreign company registered to do business in a U.S. state between January 1, 2024 and December 31, 2024 | Initial BOI Report is due within 90 calendar days of creation/registration |
| Domestic company created on or after January 1, 2025 Foreign company registered to do business in a U.S. state on or after January 1, 2025 | Initial report is due within 30 calendar days of creation/registration |
| Domestic company created prior to January 1, 2024 Foreign company registered to do business in a U.S. state prior to January 1, 2024 | Initial report is due by January 1, 2025 |
Penalties
The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information, may result in a civil penalty of up to $591 for each day that the violation continues and/or criminal penalties, including imprisonment, for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
Legislative Challenges and Updates
Legal challenges to the CTA have commenced, including a lawsuit filed in Alabama. In the case of National Small Business United v. Yellen, a federal court ruled on March 1, 2024 that the reporting requirements of the CTA are unconstitutional on the grounds that the CTA exceeds Congress’ power under the U.S. Constitution. This decision applies exclusively to the plaintiffs of the case, meaning other entities must still comply with the CTA. The government has since appealed this ruling.
Some states are now passing CTA-like legislation of their own. For example, on March 1, 2024, New York Governor Kathy Hochul signed into law the amended LLC Transparency Act, which will go into effect on January 1, 2026 and will require limited liability companies formed or doing business in New York to file reports disclosing their beneficial ownership information. According to the National Association of Secretaries of State, other jurisdictions, including the District of Columbia, collect ownership and control information regarding businesses either through their articles of incorporation/organization or through periodic reports that businesses must file in their jurisdiction.
FinCEN will continue to provide guidance, information and updates related to the beneficial ownership information reporting requirements. We will continue to monitor FinCEN’s developments regarding the CTA.
If you have any questions or need further information, please reach out to your contact at GEAB&P or one of the following individuals on the GEAB&P CTA FinCEN Compliance Committee:
Barry A. Cassell Jacob L. Chase Sarah E. Kaehler
bcassell@golenbock.com jchase@golenbock.com skaehler@golenbock.com
(212) 907-7337 (212) 907-7362 (212) 907-5680
Maureen R. Monaghan May Shim
mmonaghan@golenbock.com mshim@golenbock.com
(212) 907-7335 (212) 622-7161
Golenbock Eiseman Assor Bell & Peskoe LLP
Golenbock Eiseman Assor Bell & Peskoe LLP is a Manhattan-based business law firm with a broad-based practice that offers corporate, complex litigation, labor & employment, real estate, reorganization, intellectual property, tax, and trust & estate expertise. The firm provides high value, sophisticated counsel and representation for its domestic and international clients while maintaining a hands-on, personalized approach to all matters.
The firm represents entrepreneurial, portfolio, and institutional clients, ranging from start-ups to Fortune 500 companies, with a specific focus on the mid-market segment. Among our clients are private corporations, public companies, private equity firms, venture capital firms, individual investors, and entrepreneurs.
Golenbock is a member of the Alliott Global Alliance, which was named to Band 1 of global law firm alliances by Chambers Guides, the prestigious international legal survey. Alliott numbers 215 firms in 94 countries on six continents, and helps member firms partner with others in countries around the globe.