Corporate Transparency Act: Filing for Beneficial Ownership

As part of the National Defense Authorization Act, the U.S. congress enacted The Corporate Transparency Act (CTA) in 2021. Its primary purpose is to combat financial crimes such as money laundering, terrorism financing, and corruption by increasing transparency about who owns and controls companies operating in the United States.

Purpose of the Corporate Transparency Act

The CTA was designed to close loopholes that allow anonymous shell companies to be used for illicit activities. By requiring disclosure of beneficial ownership, the law seeks to enhance transparency and accountability while safeguarding the integrity of the U.S. financial system. For businesses, the CTA represents an important regulatory obligation and highlights the need for proper record-keeping and compliance.

Key Provisions of the Corporate Transparency Act

1. Beneficial Ownership Reporting Requirements: The CTA requires certain companies to report information about their beneficial owners—the individuals who directly or indirectly own or control at least 25% of the company or exercise significant control over it.
2. Who Must File: Most corporations, limited liability companies (LLCs), and other similar entities formed or registered to do business in the U.S. must file these reports with the Financial Crimes Enforcement Network (FinCEN).
3. Exemptions: Certain entities, such as publicly traded companies, banks, credit unions, and large businesses with more than 20 employees and over $5 million in gross receipts, are exempt from the reporting requirements.
4. Information to be Reported: Companies must disclose full legal name, date of birth, address, and identification number (from a government-issued ID) of each beneficial owner.
5. Confidentiality: The information provided is stored in a secure database maintained by FinCEN and is accessible only to authorized parties, such as law enforcement and certain financial institutions conducting due diligence.
6. Penalties for Noncompliance: Failing to report or providing false information can result in civil penalties and criminal fines.

Note: On December 26, 2024, the Fifth Circuit undid an earlier decision of its motions panel to stay a district court’s injunction of enforcement of the CTA. The Fifth Circuit’s action was done to “preserve the constitutional status quo” until the oral argument panel hears the appeal, which is currently scheduled for March 25, 2025. That means that, for now, FinCEN cannot enforce the CTA and its reporting rules - additional developments are expected soon. 

Note: The Financial Crimes Enforcement Network (FinCEN) recognizes hardships such as businesses affected by the hurricanes. For more information about exempt companies or to see if you qualify for an extension due to hardship, visit FinCEN's website or contact them directly. 

Understanding Beneficial Ownership

A beneficial owner is an individual who exercises substantial control over or owns a significant interest in a reporting company. Owners with interest of 25% or more are considered beneficial owners. Individuals with significant control, such as a senior officer of a company who makes key decisions regarding operations, finances, or governance, are considered control persons.

Reporting Requirements

The FinCEN BOI E-Filing System will ask you to provide information regarding both the business and the beneficial owner(s) or control person(s). 

Beneficial Owner/Control Person

• Name
• Date of Birth
• Address
• Identification number from a government issued ID
• Photo of the government issued ID

Business

• Full legal business name
• Doing business as (DBA), trade name, or assumed name(s)
• Street address of business
• Employer Identification Number (EIN)

Penalties for Noncompliance

To comply with the CTA, you must file to prevent criminal and civil penalties. Willfully violating the reporting requirement may be subject to $500/day in civil penalties for each day the violation continues. Criminal penalties include up to two years of imprisonment and a fine of up to $10,000.00. These amounts may be subject to inflation, visit the FinCEN's website for the most up-to-date information.

How to File

The FinCEN BOI E-Filing System supports the electronic filing of the Beneficial Ownership Information Report (BOIR). You can submit your BOIR online here.

Frequently Asked Questions (FAQs)

1. Does reporting beneficial ownership information to Grasshopper Bank satisfy the BOI requirement?
   • Although Grasshopper Bank already collects beneficial ownership information as part of onboarding, it does not satisfy the requirement to report to FinCEN.
2. Can my FinCEN ID be used as an EIN for the bank?
   
   • No, the FINCEN ID cannot be used as an EIN for the bank, nor does it mitigate the need to provide any customer identification program (CIP) information for onboarding and account maintenance purposes.
3. Who should we update if my company's beneficial ownership changes?
   • The bank and FinCEN should be promptly notified of any changes in the company’s beneficial ownership, in accordance with BOI reporting requirements.
4. What if we do not update our beneficial ownership?
   • • FinCEN requires BOI to be updated within 30 days of a beneficial ownership change. For more information, refer to Chapter 6.1, “What should I do if previously reported information changes?” of FinCEN’s Small Entity Compliance Guide.
     • From a banking perspective, not updating your beneficial ownership or control person(s) can lead to banking delays, account restrictions, or account closure. If your company has had a change in beneficial ownership, please contact Client Services.

Support

• For more information on how to stay compliant with CTA, visit FinCEN's website.
• To report a change in beneficial ownership to Grasshopper, contact Client Services.