The Corporate Transparency Act: A Practical Guide for Founders, Investors, and Business Operators

BOI Efiling is now available through Pulley. Read how here.

Understanding how the Corporate Transparency Act (CTA) will impact your business is essential. Set to come into effect in 2024, the CTA requires most legal entities, domestic and foreign, to disclose ownership information.

Failure to comply may result in severe consequences, including criminal charges, fines up to $500 a day, and imprisonment.

Whether you're a founder with minimal knowledge of the CTA, a law firm needing to assist clients with filings, or an investor concerned about personal data security, this guide is for you. 

It’ll help you understand CTA and its relevance to your company. It will also outline the steps to take and how Pulley can assist in staying compliant:

• The basics of the Corporate Transparency Act (CTA)
• Know whether CTA applies to your company
• Understand how CTA impacts your business
• Key deadlines and requirements for filing BOI
• File BOI with Pulley’s secure, user-friendly, and compliant workflow

Don't forget to watch our webinar, "Corporate Transparency Act: a guide for startup founders, investors, and business leaders," in which legal professionals from Gunderson Dettmer discussed how to properly prepare for this new regulation:

1) What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a critical legal requirement introduced by the Financial Crimes Enforcement Network (FinCEN) to enhance corporate ownership transparency. This law focuses on stopping illegal activities, such as hiding the people who control fake companies, like shell and front companies. 

With the CTA taking effect on January 1, 2024, it's essential for corporations, LLCs, and other entities to understand and follow these new reporting requirements. Not following these rules can have serious consequences. This includes being charged with a crime, having to pay up to $10,000, or going to jail. 

2) How to know whether the CTA impacts your company?

Under the CTA, companies are required to submit information about their beneficial owners, shedding light on the individuals who exercise substantial control or own significant stakes in these entities.

The CTA requirements extend to:

• Domestic entities: Corporations (C-Corps) and Limited Liability Companies (LLCs) are required to file a Beneficial Ownership Information (BOI) report.
• Foreign entities: C-Corps or LLCs that are registered to do business in any U.S. state are also required to file a Beneficial Ownership Information (BOI) report.

Companies with a workforce exceeding 20 employees, gross receipts surpassing $5 million, and a physical office within the United States are exempt from the CTA. Furthermore, the Reporting Rule specifies twenty-three (23) distinct entity types that are not subject to this reporting obligation, as detailed in the Small Entity Compliance Guide issued by the Financial Crimes Enforcement Network (FinCEN).

3) How does CTA impact your business?

If your company falls under the scope of the CTA, you'll be required to file a BOI. This requirement extends to identifying and documenting the individuals who have significant control or hold a substantial interest in your company.

Here's what that entails and how it affects your business:

Definition of a beneficial owner

A beneficial owner under the CTA is defined as any individual who:

• Directly or indirectly exercises substantial control over the reporting company.
• Directly or indirectly owns or controls at least 25 percent of the ownership interests of the reporting company.

Definition of a company applicant

Companies formed or registered on or after January 1, 2024, are also required to report their company applicants. A company applicant is defined as one of the following:

• The primary filer: This is the individual who directly files the document that creates or registers the company.
• The principal controller: If more than one person is involved in the filing, it refers to the individual primarily responsible for directing or controlling the filing process.

What information do you need to file BOI?

To file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN), you'll need to gather the following key information:

1. Company Information:
   • Legal name of the reporting company
   • Any trade names or "doing business as" (DBA) names
   • Business address
   • State of formation or registration
2. Beneficial Owners' Information: For each beneficial owner (individuals who own or control 25% or more of the company, or who have substantial control):
   • Full legal name
   • Date of birth
   • Residential address
   • Unique identifying number from an acceptable identification document (e.g., passport number, driver's license number)
3. Company Applicants' Information: For the individual(s) who filed the documents to form or register the company:
   • Full legal name
   • Date of birth
   • Business address
   • Unique identifying number from an acceptable identification document
4. Supporting Documentation:
   • Scanned copies or images of identification documents for all reported individuals

It's important to ensure all this information is accurate and up-to-date when filing the BOI report. FinCEN requires this information to enhance transparency and help prevent the use of companies for illicit activities.

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4) When do companies need to file BOI and avoid penalties?

Understanding the penalties for non-compliance

Failure to file the BOI report can result in civil fines of $500 per day, up to $10,000 per violation. Additionally, there are criminal penalties, including up to two years' imprisonment for violations of the CTA. To prevent fines and legal trouble, file promptly and maintain accurate records.

Important deadlines to file BOI

There are two critical deadlines that every company should know:

• Entities formed before January 1, 2024: File the BOI report before January 1, 2025.
• Entities formed on or after January 1, 2024: File within 90 days of formation.

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How often do you need to file a BOI report?

After filing the initial report, there are no annual or quarterly filing requirements. However, after any change occurs in your company’s information or its beneficial owners that were previously reported, companies must file an updated BOI report within 30 days.

The same 30-day period also applies to modifications submitted by individuals to obtain a FinCEN identifier. For a comprehensive list of changes requiring an updated BOI report, consult FinCEN’s Small Entity Compliance Guide.

5) How to file a BOI report to stay compliant?

Filing BOI reports can be done via: Using Pulley’s automated electronic filing workflow, or directly filing with FinCEN.

File BOI safely and compliantly through Pulley

We've streamlined the BOI filing process to make it as simple and straightforward as possible:

• Log in to your Pulley account
• Navigate to the new BOI Reporting tab under “Comply & Tax”
• Follow the workflow to input the required information
• Review your submission
• Submit your BOI report electronically through our secure platform
• Receive and review your filing results on Pulley

Our system will save your submission attempts and results, providing you with a clear record for future reference or potential audits.

File BOI through FinCEN yourself

The form will be available on FinCEN’s portal. Here’s how you can go about it:

• Gather necessary information: You’ll need to compile details about your company, beneficial owners, and company applicants.
• Get the form ready: fill out the form with the right information. 
• Submit the BOI report: File the report directly to FinCEN electronically, ensuring all required information is accurate.

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6) Conclusion

The CTA marks a new era of corporate responsibility. By staying informed and proactive, you can navigate these changes with confidence. Pulley is here to help you navigate these new regulations, ensuring you meet your reporting obligations seamlessly and securely.