Compliance with regulatory requirements is crucial for the success of any business, but startups, with limited resources, need to be particularly careful. The recent enactment of the Corporate Transparency Act (CTA) in the United States has introduced new beneficial ownership information (BOI) reporting obligations for companies that will affect many startups. This legislation is intended to improve transparency and curb illegal activities such as money laundering and fraud. 

Startup companies need to understand and comply with the CTA’s new beneficial ownership information reporting requirements. The penalties for failing to comply are substantial, including a $500 per day penalty (up to $10,000) and potential prison time. 

Consult your attorney

The CTA reporting obligations are a legal requirement for companies. Certified public accountants (CPAs) like Kruze Consulting are not allowed to provide legal advice. According to the AICPA Membership Insurance Programs, “Providing technical or interpretive advice on CTA may rise to the practice of law.” We’re providing a brief overview of the new law to make startups aware of their reporting responsibility, but you should seek qualified legal counsel to make sure that your startup aligns with the CTA requirements. Legal professionals can provide guidance on compliance, help interpret regulations, and address any specific concerns related to your business. 

Understanding the Corporate Transparency Act

The Corporate Transparency Act, passed as part of the National Defense Authorization Act for Fiscal Year 2021, requires certain corporations, LLCs, and other similar entities to report information about their beneficial owners and company applicants to the Financial Crimes Enforcement Network (FinCEN). 

Does your startup need to file?

You will need to consult your attorney to determine if your company qualifies as a  “reporting company” under the new legislation. Most startups will probably be required to comply, but the law outlines a number of exemptions. Your legal counsel can advise you on your status.

What are the deadlines to file the information? 

The requirement becomes effective January 1, 2024, and companies created or registered before then will have until January 1, 2025 to file their initial BOI reports. Companies created or registered after January 1, 2024 will have 90 days to file their BOI reports. The reports must be filed electronically at FinCEN’s website: https://www.fincen.gov/boi.

Will my startup need to file BOI updates? 

If any of the information reported about your startup, or any of its beneficial owners, changes, an updated report has to be filed with FinCEN within 30 days of the change. If you discover any errors or inaccuracies on your BOI report, you must file a corrected report within 30 days of when you became aware of the inaccuracy. So there is no exact answer to how often you need to file a Beneficial Ownership Information report with FinCEN – you just have to file updates as your company’s ownership changes, after you’ve made the initial filing. 

Who must provide information?

The law identifies two types of individuals who must provide BOI:

  • Beneficial owners are individuals who own 25% or more of the company or exercise substantial control over its management. This may include executives and directors, stockholders with authority to make management changes, and investors with decision-making authority.
  • Company applicants are the individual who filed the documents that created the company, or the individual who directed or controlled the document filing that created the company. 

What information is required?

You’ll need to provide information about your startup:

  • Startup legal name and any trade names or DBA names 
  • US address
  • State (or country) of incorporation
  • Tax identification numbers, including IRS Taxpayer Number and Employer Identification Number (EIN)
  • Information about each beneficial owner, including legal name, birthdate, and legal address

Start planning now

The Corporate Transparency Act introduces new reporting rules for startups, so work with your legal team to create a plan now to address these requirements. Remember, Kruze Consulting will not be able to assist you with your BOI requirements. Millions of businesses will need to comply with the new rules, so you should implement a process to address your BOI obligation as soon as possible to avoid any last-minute issues.