As a follow up to our 2022 article “An Introduction to the Corporate Transparency Act,” this article seeks to take a deeper dive into the Corporate Transparency Act (CTA) and its reporting requirements which go into effect January 1, 2024. In an effort to prevent illegal activities, the CTA was passed to improve business activity transparency by requiring disclosure of company and beneficial ownership information. This article seeks to provide a basic overview of (i) the CTA reporting requirements, (ii) how to file reports and amendments, (iii) how attorneys and other professionals can assist clients with CTA reporting, and (iv) what attorneys need to be mindful of when assisting clients with CTA reporting requirements. This article is not intended to be all inclusive and is subject to further statutory and regulatory developments which may spring up as the effective date rolls around at the start of 2024. Regular engagement of a legal professional can assist in ensuring that you stay up to date on the latest CTA rules, regulations, and developments as further guidance is developed following the effective date of the CTA. 

I. CTA Reporting Requirements

The CTA was codified by 31 U.S.C. § 5336 together with regulations under 31 CFR § 1010.380 setting forth the reporting requirements that go into effect January 1, 2024. 31 CFR § 1010.380 delegates the power to regulate compliance with the CTA to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN)¹. Among other things and in general, the CTA requires disclosure of certain company information and individuals to FinCEN via a beneficial ownership information report (otherwise known as a “BOI report”). All “reporting companies” are required to comply with CTA reporting requirements by filing a BOI report with FinCEN. 31 CFR § 1010.380 goes on to define what a “reporting company” is (which includes both domestic and foreign companies registered to do business in the USA) and also sets forth exemptions to the reporting requirements.

Generally, domestic reporting companies are corporations, limited liability companies, limited liability partnerships, and any other entity which is created by filing a document with the applicable Secretary of State office (or any other similar office) or an Indian tribe. Generally, foreign reporting companies are corporations, limited liability companies, and any other entity formed under the laws of a foreign country, but which are registered to do business in any state of the USA or tribal jurisdiction by filing a document with the applicable Secretary of State office (or any other similar office) or an Indian tribe. Any entity which falls outside the definitions of a “reporting company” is not required to file a BOI report with FinCEN. A reporting company could avoid the CTA reporting requirements if it falls into one of the twenty-three exemptions provided by 31 CFR § 1010.380. Such exemptions are:

1. Securities reporting issuer;

2. Governmental authority;

3. Bank;

4. Credit union;

5. Depository institution holding company;

6. Money services business;

7. Broker or dealer in securities;

8. Securities exchange or clearing agency;

9. Other Exchange Act registered entity;

10. Investment company or investment adviser;

11. Venture capital fund adviser;

12. Insurance company;

13. State-licensed insurance producer;

14. Commodity Exchange Act registered entity;

15. Accounting firm;

16. Public utility;

17. Financial market utility;

18. Pooled investment vehicle;

19. Tax-exempt entity;

20. Entity assisting a tax-exempt entity;

21. Large operating company;

22. Subsidiary of certain exempt entities; and

23. Inactive entity.

Once determined to be a reporting company, such company is required to file a BOI report with FinCEN which includes information on “beneficial owners” and “company applicants.” Beneficial owners are composed of two categories of individuals who, directly or indirectly, either:

• Exercise “substantial control” over a reporting company; or
• Owns or controls at least 25% of the ownership interest of a reporting company.

An individual is deemed to have “substantial control” over a reporting company if the individual, directly or indirectly:

• Serves as a senior officer of the reporting company;
• Has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body);
• Directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:
  • The nature, scope, and attributes of the business of the reporting company, including the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
  • The reorganization, dissolution, or merger of the reporting company;
  • Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
  • The selection or termination of business lines or ventures, or geographic focus, of the reporting company;
  • Compensation schemes and incentive programs for senior officers;
  • The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts;
  • Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures; or
• Has any other form of substantial control over the reporting company.

The CTA does provide a few exceptions to the definition of a beneficial owner: (i) a minor child; (ii) a nominee, intermediary, custodian, or agent on behalf of another individual; (iii) an employee (other than a senior officer); (iv) an inheritor; and (v) a creditor. Meanwhile, company applicants are defined as:

• the individual who directly files the document that creates the domestic reporting company;
• the individual who directly files the document that first registers the foreign reporting company; and
• the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.

Given the definition of a company applicant, at least one, but no more than two individuals will be disclosed on a BOI report as a company applicant. Neither companies nor legal entities can be company applicants. Individuals may seek to apply for a FinCEN identifier² which can be used on BOI reports in lieu of disclosing the required information about the individuals or reporting company on the BOI report. The FinCEN identifier application will require substantially the same information required to be disclosed on BOI reports, but will assist in streamlining a reporting company’s ability to file BOI reports and amendments. Although FinCEN has made it clear it will not be making BOI reports available to the public, it will be making BOI reports available to certain authorized persons. 

Pursuant to 31 CFR § 1010.380, reporting companies created or registered prior to January 1, 2024 must report this fact on their BOI reports, but are not required to disclose any information with respect to any company applicant. All reporting companies created or registered on or after January 1, 2024, must include company applicant information on their BOI reports. Penalties for violating the CTA include a daily fine of $500 with a max fine of up to $10,000 and 2-years imprisonment. There are different penalties for the misuse or handling of beneficial ownership information (including a max fine of up to $250,000 and 5-years imprisonment). 

To assist the public with CTA compliance, FinCEN published a final rule regarding the CTA under the Federal Register, Vol. 87, No. 189, dated September 30, 2022 (the “Final Rule”). The Final Rule seeks to walk through and explain the CTA in detail, including answering comments and questions posed by private third parties during the discussion stages of the CTA.

II. BOI Reports and Amendments

Reporting companies created or registered on or after January 1, 2024 are required to file a BOI report with FinCEN within 30 calendar days of their creation or registration. All reporting companies created or registered before January 1, 2024 must file their initial BOI report with FinCEN no later than January 1, 2025. Any exempted reporting company that no longer meets the exemption requirements are required to file an initial BOI report with FinCEN within 30 calendar days after the date it no longer meets the criteria for any exemption. 

FinCEN established the Beneficial Ownership Secure System (otherwise known as BOSS) to serve as the official and sole platform to electronically file BOI reports. BOSS will be free to the public, but is currently unavailable as FinCEN is not currently accepting any BOI reports until the effective date of the CTA. As explained in the Final Rule, FinCEN has considered the possibilities of filing paper BOI reports directly or indirectly (e.g., by filing with the office of a Secretary of State and then having the state forward the report onto FinCEN), but FinCEN has decided not to accept paper BOI reports for the foreseeable future. For now, BOSS will serve as the only method of filing initial BOI reports and amendments. 

Reporting companies will be required to disclose the following information about themselves on their BOI reports:

• Full legal name;
• Any trade name or “doing business as” (DBA) name;
• The address of the principal place of business in the USA, or, if the reporting company’s principal place of business is not in the USA, the primary location in the USA where the company conducts business;
  • FinCEN has clarified that the disclosed address cannot be a P.O. box.
• State, tribal, or foreign jurisdiction of creation; and
  • A foreign reporting company should disclose only the state or tribal jurisdiction of first registration.
• Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN)).
  • If a foreign reporting company has not been issued a TIN, report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

Reporting companies will be required to disclose the following information regarding their beneficial owners and company applicants:

• Full legal name;
• Date of birth;
• Complete current address; and
  • Report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address. 
  • The address is not required to be in the USA.
• Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
  • U.S. passport;
  • State driver’s license;
  • Identification document issued by a state, local government, or tribe; or
  • If an individual does not have any of the previous documents, foreign passport.

If there are any changes that occur after the filing of a BOI report, a reporting company has 30 calendar days after the date on which the changed occurred to file an updated BOI report³. This also applies to any change in the information submitted to FinCEN by an individual in order to obtain a FinCEN identifier. Keep in mind when exemptions or exceptions of a reporting company or beneficial owner lapse, the reporting company may be required to file an updated BOI report with FinCEN (e.g., a beneficial owner who is a minor child reaches the age of majority). A reporting company that becomes exempt following its initial filing of a BOI report must file an updated BOI report simply informing (by checking a box on the BOI report) FinCEN of its newly acquired exemption.

Any inaccuracy which is identified in a BOI report must be corrected no later than 30 calendar days after its discovery by the reporting company. There are no penalties for correcting inaccuracies in a BOI report provided it is corrected within 90 calendar days of its initial filing. A reporting company is not required to file an updated BOI report for any changes to personal information reported about a company applicant. Additionally, the termination or dissolution of a reporting company is not required to be reported to FinCEN. Similar to all initial BOI reports, all updated or corrected BOI reports will need to be filed through BOSS. 

FinCEN has clarified that reporting companies will only need to file an initial BOI report and amendments when necessary; there is no annual filing requirement. To better assist small businesses in their effort to comply with the CTA reporting requirements, FinCEN has published FAQs on its website⁴ and the Small Entity Compliance Guide⁵. The guide seeks to help explain the basics of the CTA, its filing requirements, and provide a step-by-step guide of determining who and what needs to be disclosed on a BOI report for simple structured reporting companies.

III. Professional Assistance to Clients

Although 31 CFR § 1010.380 and the Final Rule are quite detailed regarding who and what must be disclosed, it is silent as to any limitations and restrictions regarding who may report beneficial ownership information or amendments on behalf of a reporting company. Recently on December 12, 2023, FinCEN clarified who may submit BOI reports or amendments on BOSS on behalf of a reporting company: “[a]nyone whom the reporting company authorizes to act on its behalf—such as an employee, owner, or third-party service provider—may file a BOI report on the reporting company’s behalf,” and further clarified “individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number.” There currently seems to be no statutory or regulatory limitation or prohibition at the federal level regarding the services related to CTA reporting assistance by an attorney or other professional. 

The Final Rule clarifies that the reporting company is ultimately responsible for the accuracy and completeness of a BOI report, even if it uses an individual as an agent to complete such report. The use of professionals or agents to assist in the preparation or filing of a BOI report will not absolve a reporting company of liability for non-compliance or providing fraudulent information. 

The Final Rule establishes a standard of certification for both the reporting company and any agent filing on its behalf, but specifies it does not establish standards for those “roles, duties, and capacities [that] can be subject to different requirements and different legal duties” such as tax advisors, public accountants, and attorneys. Instead, FinCEN holds that such persons will continue to be held to their respective professional standards, duties, and obligations. Furthermore, the Final Rule discloses FinCEN’s estimated costs for reporting companies to complete BOI reports which seems to imply such reports are not anticipated to be completed internally, but rather include the engagement of outside professional services. On November 16, 2023, FinCEN stated it expects most reporting companies to be able to complete their BOI reports and subsequent amendments without the need of professional assistance, but understands engagement with professionals such as attorneys and accountants will be necessary to understand a reporting company’s obligations under the CTA.

Non-attorney professionals should be cautious not to provide services or advice which may fall within the illegal conduct of the unauthorized practice of law (“UPL”). The issue of whether an unauthorized practice of law has occurred falls under state jurisdiction and state law. The UPL statutes are different in each state and will be analyzed differently from state to state. For example, on its face, advising on the CTA reporting requirements (who needs to be disclosed and when) and interpreting rules and regulations established by FinCEN does seem to fall within the meaning of the unauthorized practice of law under Minnesota law⁶ (the “MN UPL”). Nevertheless, Minnesota courts have focused on whether a legal question, and not simply the preparation of a document, was answered by a non-attorney when determining if there was a violation of the MN UPL.

Understanding statutory language and how state courts interpret their UPL statute will help a non-attorney professional structure proper services and advice to offer clients. Engagement with a legal professional can assist in separating legal matters from those which a non-attorney professional can assist clients with. For example, under the MN UPL the preparation of a BOI report for a simple structured single-member LLC owned by an individual likely won’t require the engagement of an attorney because the information required to be disclosed (who, what, and when) will likely be very evident. However, a complex structure involving multiple indirect owners and layers of entities (including operating entities, tax blockers, or holding companies) will likely require the engagement of an attorney to assist in determining what information is required to be disclosed. Under the MN UPL, Minnesota state courts will likely hold that a complex structure will likely require an attorney to answer the legal questions of who and what needs to be disclosed under the CTA by analyzing the requirements and definitions under the CTA and FinCEN regulations.

IV. Attorney Matters

Although reporting companies are responsible for the accuracy of their BOI reports, 31 C.F.R. § 1010.380(g)(4) holds that any person could be subject to violation or non-compliance rules under the CTA if “such person either causes the failure, or is a senior officer of the entity at the time of the failure” of providing a complete or updated BOI report. This implies that an attorney, in certain circumstances, could be subject to penalties and fees under the CTA if that attorney causes the failure to file a complete BOI or file updates when necessary. 

Heightened due diligence should be exercised to flush out the correct information from a reporting company when preparing or advising on a BOI report. Attorneys may also want to monitor a reporting company’s exemptions and exceptions on a rolling basis to ensure neither lapse which may cause the need to file an initial BOI report or amendment. As noted above, attorneys that assist with the filing of BOI reports should be prepared to share basic information about themselves with FinCEN, even if the attorney is not a company applicant or beneficial owner. 

Attorneys and staff that assist in the creation or registration of a reporting company will be deemed a company applicant which will require disclosure and inclusion of certain information on the reporting company’s BOI report. Although a change in personal information of a company applicant does not trigger the requirement to update a BOI report, attorneys and their staff should be mindful of providing correct information at the time of the initial BOI report and may seek to take the opportunity to update their information when company information does change which requires an updated BOI report to be filed. Given the upcoming effective date of the CTA, attorneys should be mindful of any statutory or regulatory developments which may come up as the year rolls on. FinCEN has and will continue to update its website with useful information for the public which attorneys can leverage when assisting clients comply with CTA requirements. 

References:

1. The official FinCEN and BOI reporting website can be located at https://www.fincen.gov/boi.

2. Although the application is not yet available to the public, a notice by the Treasury Department was issued on September 29, 2023 on the Federal Register where it walked through the FinCEN identifier application and gave additional insight on its requirements and processing procedures. A copy of the notice can be located at https://www.federalregister.gov/documents/2023/09/29/2023-21325/agency-information-collection-activities-submission-for-omb-review-comment-request-individual-fincen. 

3. An updated BOI report following the death of a beneficial owner will need to be filed within 30 calendar days of when the deceased beneficial owner’s estate is settled.

4. FAQs can be located at https://www.fincen.gov/boi-faqs.

5. A copy of the BOI Small Compliance Guide can be located at https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf.

6. Minn. Stat. § 481.02.