What is the Corporate Transparency Act?
Find out how your business is affected by the Corporate Transparency Act and your reporting responsibilities as a business owner or executive.
The Corporate Transparency Act went into effect on January 1st, 2024. All businesses that are not exempt and were created after that date have only 90 days to complete their filing.
What is Beneficial Ownership Information reporting?
The Beneficial Ownership Information (BOI) report is a new U.S. filing requirement that went into effect on Jan. 1, 2024, enforced by the U.S. Treasury's Financial Crime Enforcement Network (FinCEN), which is a result of the Corporate Transparency Act (CTA).
An estimated 90% of businesses registered in the U.S. are required to file ownership information.
If you own one of those businesses, you are required to file identifying information about the individuals who "directly or indirectly own or control your company," as well as, in certain cases, information on "company applicants," or people involved in the creation of the company.
P.S. - you can check if and when you are required to file with our exemption checker.
Identifying company applicants
A "company applicant" refers to people involved in the establishment or registration of a company. There are two types:
Direct filer: An individual who physically or electronically files the documents to create or register the company. Every reporting company required to report company applicants must identify this individual.
Individual who controls the filing: Someone who plays a key role in directing or controlling the action of filing the documents for creating or registering the company. This category is only necessary when more than one person is involved in the filing process.
It's important to note that only individuals can be considered company applicants; companies or other legal entities are not eligible for this designation. Reporting companies formed after Jan 1, 2024 are required to report at least one, and at most two, company applicants.
These roles are quite often:
Direct filer: An attorney or formation agent who is paid to form the company with the state.
Individual who controls the filing: An owner of the company who took on the role of forming the company.
Transparency is made to help attorneys coordinate with their clients to file their reports accurately, easily adding themselves as company applicants to the report.
Identifying beneficial owners
The first step is identifying the business' beneficial owners. This involves understanding the criteria set by the CTA – who in your organization holds significant control or ownership? These requirements can be hard to navigate for business owners.
Ownership by significant control
"Significant control" in a company, according to the CTA, refers to the power or influence certain individuals have over the company's operations and decisions. This control is not restricted to a specific number of people; rather, anyone who meets one or more of the following criteria is considered to have substantial control:
Senior Officer Role: If the person holds a high-ranking position in the company, like a CEO or CFO, they are seen as having significant control.
Authority over Key Positions: If the individual can appoint or remove key officers or a majority of the board of directors, this indicates substantial control.
Decision-Making Power: This includes individuals who are crucial in making important decisions for the company.
Other Forms of Control: Any other way in which an individual can exert a considerable influence over the company, even if it's not through a formal role or decision-making power.
Significant control is about having the power to direct the company's path and decisions, whether through official positions, decision-making authority, or other influential means.
Ownership by interest
Ownership interest in a company refers to the rights or shares that a person has in the company. These can take various forms, such as:
Equity Stock or Voting Rights: This represents a direct stake in the company, often accompanied by the right to vote on company matters.
Capital or Profit Interest: This indicates a share in the company's profits or capital (also called "units").
Convertible Instruments: These are financial instruments that can be converted into other types of securities, usually into equity.
Options or Privileges: These are rights to purchase or sell the company's securities under specified conditions.
Other Mechanisms: Any other contracts or arrangements that establish some form of ownership in the company.
These usually vary depending on how the business was formed - LLC's and partnerships usually refer to these as "units", where corporations typically use equity.
Guided filing with Transparency
Our resources guide you through identifying these individuals accurately so your report is compliant. The reporting requirements are hard to navigate, but Transparency makes it easy for you to safely file with your co-owners.
