In an attempt to thwart money laundering, terrorism financing, and other illegal corporate activity that is sometimes hidden behind so-called “shell” companies, in 2022 Congress passed the Corporate Transparency Act, 31 U.S.C. § 5336 (2022) (“CTA” or the “Act”). The CTA will require most smaller corporations and limited liability companies (“LLCs”) registered in Minnesota and other states to disclose the identity of their owners to the U.S. Treasury. After many months of rule-making, the CTA will finally go into effect on January 1, 2024 (“Effective Date”).
The Act requires certain existing and new corporations, limited liability companies, and other business entities (referred to as a “Reporting Company”) to submit a Beneficial Ownership Information (“BOI”) report, including, but not limited to, identifying information regarding the Reporting Company’s owners (“Beneficial Owners”) and the individual or individuals who participated in its formation (the “Applicant”).
What is a Reporting Company?
If your business entity falls within the definition of “Reporting Company,” you will be required to adhere to the Act’s reporting requirements. A “Reporting Company” is a corporation, limited liability company, or other similar entity that is (1) created by filing with a secretary of state or a similar office under the law of a State or Indian Tribe; or (2) formed under the law of a foreign country and registered to do business in the United States by the filing of registration documents with a secretary of state or a similar office under the laws of a State or Indian Tribe. 31 U.S.C. § 5336(a)(11)(A). The Act, however, excludes 23 types of entities from its definition of “Reporting Company,” including publicly-traded companies, banks, insurance companies, and medium-sized and large companies. See 31 U.S.C. § 5336(a)(11)(B)(i)-(xxii) (e.g., (i) Security reporting issuers; . . . (iii) banks; . . . (xi) investment advisers; (xii) insurance companies; and . . . (xxi) large operating companies (entities that employ more than 20 employees full time in the United States and have more than $5 million in annual revenue). This latter exception is perhaps the most significant. A business with only 21 employees and $5 million in sales would not typically be considered particularly “large,” meaning the law truly targets only “small” businesses.
What Are Beneficial Owners and Applicants?
Minnesota business entities subject to the Act are required to submit information about certain key individuals that participate in the control of or benefit from involvement with the Minnesota business entity, referred to as Beneficial Owners. A “Beneficial Owner” is defined as any individual who (1) exercises substantial control over the Reporting Company; or (2) owns or controls 25% or more of the ownership interest in the Reporting Company; and (3) does not include (i) minor children; (ii) agents acting on behalf of another individual; (iii) employees of the Reporting Company; (iv) inheritors of a Reporting Company’s ownership interest; or (v) creditors of a Reporting Company. 31 U.S.C. § 5336(a)(3)(A) and (B).
An “Applicant” is defined as any person who “(A) files an application to form a corporation, limited liability company, or other similar entity under the laws of a State or Indian Tribe; or (B) registers or files an application to register a corporation, limited liability company, or other similar entity under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office under the laws of a State or Indian Tribe.” 31 U.S.C. § 5336(a)(2).
What Information Are Beneficial Owners and Applicants Required to Include in Their BOI Report and Where does it get Reported?
The Act requires that all Reporting Companies file a BOI report with the Financial Crimes Enforcement Network (“FinCEN”), a division of the Treasury Department. 31 U.S.C. § 5336(b)(1) and (2)(A). https://www.fincen.gov/boi. If your Minnesota business entity falls within the definition of a Reporting Company, you should prioritize the collection of your beneficial ownership information and discuss when and how your business entity will make your submissions to the FinCEN.
The Act’s BOI reporting provision will require your Minnesota business entity to file the following information about your Beneficial Owners and Applicants: (1) full legal name; (2) date of birth; (3) current residential or business address; and (4) either a unique identifying number from an acceptable identification document (e.g., nonexpired passport issued by the United States; nonexpired identification document issued by a State, local government, or Indian Tribe; nonexpired driver’s license issued by a State; or nonexpired passport issued by a foreign government); or (5) a FinCEN identifier. 31 U.S.C. §§ 5336(a)(1) and (b)(3) (stating, “FinCEN shall issue a single FinCEN identifier to any individual or entity that, upon request, has provided FinCEN with the required BOI report information.”)
When Must the Report be Made, and How Often?
Depending upon when your Minnesota business entity was created, the Act requires different deadlines for filing your BOI report. 31 U.S.C. § 5336(b)(1). If your Minnesota business entity was already created prior to the Effective Date of the Act (January 1, 2024), then your Minnesota business entity is required to file its BOI report with FinCEN no later than one year after the Effective Date, January 1, 2025. 31 C.F.R. § 1010.380(a) (1)(iii); 31 U.S.C. § 5336(b)(1)(B). If you create a new Minnesota business entity after January 1, 2024, then your entity is required to file its BOI report with FinCEN within thirty days after receiving notice of the formation or registration. 31 C.F.R. § 1010.380(a)(1)(i) and (ii).
Regardless of when your Minnesota business entity is created, you are also required to file an updated report for changes in beneficial ownership no later than thirty days after the date on which any change of Beneficial Ownership information has occurred. 31 U.S.C. § 5336(b)(1)(D). This means any time there is a change in the ownership structure, such that one owner sells his interest or another owner buys in, you or your attorney will need to determine whether a new BOI Form needs to be submitted.
What Is the Penalty for Failing to File a BOI Report with FinCEN?
Any person that willfully provides, or attempts to provide, false or fraudulent Beneficial Ownership information, or willfully fails to report complete or updated Beneficial Ownership information to FinCEN may be liable for a civil penalty up to $500 for each day that the violation continues or fails to be remedied, and on the criminal end, be fined up to $10,000 and imprisoned for up to two years, or both. 31 U.S.C. § 5336(h)(1) and (3)(A).
Will BOI Information be Available to the Public?
The Minnesota Secretary of State does not require public disclosure of owners of LLCs and small corporations. The CTA will not change that. The identity of LLC and corporation owners and other BOI information filed with the U.S. Treasury will not be available to the public. Just as the Treasury keeps tax information private, BOI information will also be private. That means, for example, that individuals who wish to hold real estate in an LLC anonymously, may still do so. It also means that potential litigants attempting to discern the identity of the members of an LLC will not be able to access the CTA to obtain that information. We may, however, see litigants asking for BOI reports as part of discovery in litigation, just as parties sometimes ask for tax returns.
Do I need a Minnesota Attorney to file a BOI Report?
You are not required to have an attorney file your BOI Report. Many commentators, however, believe that having an attorney, accountant, or other professional assist with the filing will be a best practice for most small businesses. And, if your attorney is helping you form a new LLC or corporation, or working with you on the sale of a business, they can file the BOI Report along with the other paperwork. Now may also be a good time to dissolve any unused business entities that you have created in the past.
The CTA will create a modest additional administrative burden on small businesses, akin to filing taxes or filing a corporate renewal, but proactive compliance is the best way to minimize this burden. Contact the Minnesota business law attorneys at Trepanier MacGillis Battina P.A. if you have any questions about the Corporate Transparency Act.
About the Author:
Trenton K. Seegert is a graduate of the Mitchell Hamline School of Law and a member of the Business Practice Group at Trepanier MacGillis Battina P.A., a business law firm located in Minneapolis, Minnesota. He can be reached at 612.455.6215 or firstname.lastname@example.org.