The Federal Corporate Transparency Act, enacted in 2021, will take effect on Jan. 1, 2024.

Corporations and smaller firms are scrambling to comply. 

Central to the CTA is the Beneficial Ownership Information Reporting mandate, aimed at curbing money laundering, tax fraud and other illicit activities through enhanced transparency of entity structures and ownership. This law is set to broaden the federal database of all entities operating in or accessing the U.S. market, encompassing both domestic and foreign reporting companies.

It includes corporations, limited liability partnerships, limited liability companies and other limited partnerships. According to a Small Business Administration report, about 27 million small businesses known as “non employer firms” will also be affected. 

These reporting companies must file BOI Reports with the U.S. Department of Treasury’s Financial Crimes Enforcement Network, and several prominent corporate law firms have penned guides urging businesses to act now.

According to information services company Wolters Kluwer N.V., the act is “a response to growing concerns over the misuse of anonymous shell companies for illegal purposes,” a guide on its website read. “It represents a significant departure from existing corporate reporting requirements in the United States.”

It is also set to disproportionately burden smaller companies.

Tennessee-based law firm Bass, Berry & Sims wrote the “primary burden of compliance with the CTA falls on small and medium-sized businesses” that, together through 2024, may incur “an estimated cost exceeding $22 billion.”

On Sept 30, 2022, FinCEN issued a final rule on BOI reporting provisions. The report must provide the full legal name, date of birth and current residential or business address of the beneficial owner. The beneficial owner is required to present an acceptable identification document, such as a valid state-issued driver’s license number, passport number or social security number.

“Act now to dissolve, by year end, unneeded, inactive entities that are not exempt from BOI reporting, so that companies will not have to make filings for them under the CTA when it becomes effective,” the Pillsbury, Winthrop, Shaw & Pittman wrote on Oct. 6.

According to the Final Rule, a “beneficial owner” is an individual who, directly or indirectly, through any contract or understanding, exercises substantial control over the entity. This individual must own or control not less than 25% of the ownership interests of the entity. Most C-suite corporate officers like the CEO, chief financial officer, chief operating officer or president would fall under the category.

Additionally, at least one company applicant for an entity must be identified.  A company applicant includes the individual who controls the formation filing with the Secretary of State.

This year, the agency rolled out a Small Entity Compliance guide to assist small businesses in navigating the BOIR process. On Sept. 27, FinCEN proposed extending the initial filing deadline for BOI reports from 30 to 90 days for those created or registered in 2024, providing a broader window for businesses to collate necessary information and grasp their new reporting duties. 

The regulatory agency added to this suite of support tools by introducing FinCEN REPORT, a patent-pending online filing service for reporting companies. Harvard Business Services, a Delaware-based registrant agent and formations specialist, has embraced FinCEN REPORT, exemplifying the sector’s steps toward adapting to the upcoming transparency mandates.

FinCEN Report’s signing with Harvard Business Services would ensure thousands of LLCs and corporations comply with BOI reporting. The Delaware registrant agent helped form 300,000 LLCs, and FinCEN Report’s software will now support its clients. 

“We are honored that Harvard Business Services chose our software to help manage their clients’ BOI reporting,” Jonathan B. Wilson, CEO and founder of FinCEN REPORT, said. “The CTA will greatly impact registered agents, and our goal is to make sure that, through our software, they can easily comply and stay focused on their core business,” he added. 

Of the 30 million businesses the CTA will affect, the agreement between FinCEN and Delaware’s registrant guarantees at least 60% of Fortune 500 companies will follow new regulations.

While companies face the chaos of filing annual reports, accountants and registrant agents are on the winning end. The CTA act enables financial service firms to broaden the scope of their services to include BOI compliance.