The Corporate Transparency Act (CTA) is a new law requiring companies to file reports with the Financial Crimes Enforcement Network (FinCEN) identifying their beneficial owners through beneficial ownership information filings.
BOSS filing for Beneficial Ownership Information reports
Filings will start in January 2024 with submissions made online to FinCEN through the BOSS filing system. The BOSS filing system, which stands for Beneficial Ownership Secure System, is a system developed by the Financial Crimes Enforcement Network (FinCEN) used by reporting companies to file beneficial ownership information reports under the rules of the Corporate Transparency Act (CTA). A reporting company is defined as any business with less than 21 employees and $5 million in annual revenue. Any company exceeding both of those thresholds is considered a large operating company and not required to report beneficial ownership information.
Law and accounting firms will play a critical role in helping customers navigate the requirements of the Corporate Transparency Act (CTA) as they submit beneficial ownership information. Professional expertise from attorneys and CPAs will be essential in helping these companies file correct and complete reports to avoid severe criminal penalties, including up to $10,000 and/or imprisonment for up to two years. Understanding beneficial ownership rules required a deep knowledge of many nuances required to file an accurate report and avoid criminal penalties. Ignorance is not a valid defense to providing the government with incorrect information just as when filing a federal income tax return. For example, reporting company owners will often hold their ownership interest through a limited liability company, and professional advice will be needed to direct these companies as to who they should include on their BOI reports.
Beneficial owners cannot be entities or limited liability companies
A beneficial owner is an individual who owns 25% of more of a reporting company or yields substantial control over a significant portion of the business or company, such as an owner, officer, or director. Beneficial ownership refers to the ultimate individual or individuals who own or control a company, even if their ownership is not recorded in the official records of the company.
The term beneficial owner is used in contrast to the legal owner, which is the person or entity whose name appears on the official ownership documents of the reporting company. For example, a reporting company may be owned by trusts or limited liability companies, but the individuals who control and benefit from the company are the beneficial owners. In such cases, the trusts or limited liability companies would be considered the legal owner, but the beneficial owners would be the individuals who ultimately own or control the reporting company.
The Corporate Transparency Act (CTA) requires each reporting company to disclose information about their beneficial ownership, including full name, date of birth, address, and documents for each individual who owns or controls more than 25% of the company. This information is collected to prevent illicit activities such as money laundering, terrorist financing, and other financial crimes by providing transparency on the absolute ownership of a company.
Beneficial Ownership Reporting will bring substantial new billings to law and accounting firms Initial comments on FinCEN’s release indicated that it would be difficult for an ordinary employee to understand and make decisions about the filing requirements for the Corporate Transparency Act (CTA) without the help of a professional, such as an attorney or accountant. Comments suggested that most small businesses would likely hire attorneys or accountants to help them prepare their initial filings. Current estimates indicate that more than 30,000,000 businesses need to file initial reports in 2024, leading to an estimated filing market of $21,700,000,000 (27 billion dollars), an average of about $700 per company.
Law and accounting firms will need to assist these future clients in compiling and submitting the required information, including identifying the company’s beneficial owners and ensuring that the information provided is accurate and up-to-date. Professional service firms must familiarize themselves with the Beneficial Ownership Secure System (BOSS) that businesses will use to file their beneficial ownership reports. These firms will have to ensure that the companies they help to set up are aware of the CTA requirements and that they are complying with the new regulations. This includes providing guidance on the type of information that needs to be reported, helping the company to identify and verify beneficial owners, and ensuring that the information is submitted on time and in the proper format.
Beneficial Ownership Information Software for the Corporate Transparency Act
Firms can use beneficial ownership reporting software like FincenFetch to collect the information they need to file CTA reports from clients. FincenFetch’s “Fetch” links ease the process of collecting and verifying beneficial ownership information by guiding the reporting company through a process explaining what they need to provide in each step. The user-friendly interface gently teaches clients the rules of beneficial ownership information by clarifying each requirement and providing examples to help them understand, with answers to common questions readily available at every step. Law and accounting firms will spend less time answering questions over email and streamline their processes using corporate transparency act software – leading to helping more clients and growing their firms.
Using beneficial ownership information software also simplifies filing an updated or corrected report for a client. Updated reports will be a common occurrence based on the rules of the Corporate Transparency Act requiring resubmissions when information changes. For example, a limited liability company may file an initial report early in 2024, but if the manager purchases a new home and moves, this creates a substantial change to the beneficial owner’s previously reported address. The limited liability company will now need to file an updated report listing the owner’s new address. Corporate transparency act software can help make these updates easy by building new reports from the prior report filed by the company and only requiring the owner to update the changed information. Keeping processes easy for clients helps build long-term relationships.
FincenFetch also includes a CRM system to help firms organize beneficial ownership information and automate the process of sending reminders to clients to update their beneficial ownership information, which can help to ensure that the information is accurate and up-to-date. Utilizing corporate transparency act software also reduces the risk of errors and penalties by eliminating retyping information from PDFs, helping the firm to protect its reputation and attract more clients.
Before you start drafting a new form to collect client information, we recommend you try a demo of our beneficial ownership reporting software.