The Corporate Transparency Act (CTA) places new reporting requirements on many companies and their “beneficial owners,” and most small- and mid-sized Wisconsin companies need to comply!
The CTA is a federal law that requires certain businesses to report information about their owners and the people who have control over the company. The purpose of the CTA is to fight money laundering, tax fraud, corruption and terrorist financing. It does this by requiring businesses to submit Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department. BOI reports contain basic identifying information about the company’s beneficial owners and company applicants as well
as the company itself.
Which companies are subject to the CTA?
Domestic reporting companies
The CTA applies to corporations, limited liability companies (LLCs), and other entities formed in the United States by filing with a secretary of state or a similar state office. These are referred to as domestic reporting companies. Firms organized in Wisconsin as business corporations, nonstock corporations and LLCs, among others, are organized by filing with the Wisconsin Department of Financial Institutions (DFI). Thus, they are domestic reporting companies. This includes many Wisconsin real estate firms that are entities such as corporations or LLCs.
The CTA provides exceptions for sole proprietorships, general partnerships, joint ventures and trusts. There also are exemptions for 23 other categories of entities such as large operating companies, banks, accounting firms, publicly traded companies, investment advisors and insurance companies, none of which would likely apply to a real estate firm.
Licensed broker business entities
Many Wisconsin firms are licensed broker business entities. Under the Wisconsin statutes, “business entity” means any organization or enterprise, other than a sole proprietorship, which is operated for profit or that is nonprofit and nongovernmental, including an association, business trust, corporation, joint venture, limited liability company, limited liability partnership, partnership or syndicate. A business entity is a licensed broker business entity if the business entity is licensed as a broker as described in Wis. Stat. § 452.12(2):
452.12 Licenses
(2) Business entities.
(a) A broker’s license may be issued to a business entity if the business entity has at least one business representative licensed as a broker. The license issued to the business entity entitles each business representative of the business entity licensed as a broker to act as a broker on behalf of the business entity. A broker may act as a business representative for more than one business entity if the broker obtains the express, written consent of each business entity for which the broker desires to act as a business representative. A broker may act as a broker on behalf each business entity for which it is serving as a business representative.
(c) Application for a broker’s license to be issued to a business entity shall be made on forms prescribed by the board, listing the names and addresses of all business representatives and the license numbers of all business representatives that are licensed brokers, and shall be accompanied by the initial credential fee determined by the department under s. 440.03(9)(a). If there is a change in any of the business representatives, the change shall be reported to the board, on the same form, within 30 days after the effective date of the change.
Such licensed broker business entities are domestic reporting companies and subject to the CTA if they are organized by filing with the DFI.
When does the obligation to file BOI reports begin?
- For entities formed before January 1, 2024, the initial report will be due on or before January 1, 2025.
- For entities formed between January 1, 2024, and December 31, 2024, the initial report will be due within 90 days after formation.
- For entities formed on or after January 1, 2025, the initial report will be due within 30 days after formation.
Who are a company’s beneficial owners?
A beneficial owner is any individual who directly or indirectly owns at least 25% of the company or who exercises substantial control over the company. Substantial control would be present when an individual:
- Serves as a senior officer, such as a president, CEO or general counsel.
- Has the authority to appoint or remove senior officers, board members or other similar roles.
- Makes important decisions concerning the company’s business, finances or structure.
Who are company applicants?
There can be up to two individuals who qualify as company applicants:
- The individual who directly files the document that creates the domestic reporting company.
- The individual who is primarily responsible for directing or controlling the filing of the relevant document.
What information does the company need to report about beneficial owners and company applicants?
For each beneficial owner and company applicant, the company must provide the individual’s:
- Full legal name.
- Date of birth.
- Street address; in most cases, this is a home address.
- An identifying number from a non-expired driver’s license, passport or other approved identification document as well as an image of the document that the number is from.
What information needs to be reported about the company?
A reporting company will need to provide:
- Its legal name and any trade name or DBA.
- Its street address.
- The jurisdiction in which it was formed.
- Its Taxpayer Identification Number (TIN).
How does a company report its BOI?
The report is filed electronically through a secure filing system available on the FinCEN’s BOI E-Filing website at boiefiling.fincen.gov. A company would select “File BOIR” for the reporting form. There is no fee for submitting a report.
Anyone whom a reporting company authorizes to act on its behalf, such as an employee, owner or third-party service provider, may file a BOI report on the company’s behalf. When submitting the BOI report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number.
What if there are changes to or inaccuracies in the reported information?
A company will have 30 days to report any changes to reported information. For updates, the 30 days start when the relevant change occurs. For corrections, the 30 days start after a company becomes aware of, or has reason to know of, a mistake in a prior report.
Where can a company go for assistance and guidance?
FinCEN expects that many, if not most, reporting companies will be able to submit their BOI information to FinCEN on their own using the Small Entity Compliance Guidance FinCEN has provided. See the red resources box below. Companies that need help meeting their reporting obligations can consult with professional service providers such as attorneys or accountants.
Are there penalties for companies that do not comply with the CTA?
Any person who willfully fails to file a required report or willfully files false information is subject to a civil penalty of up to $500 per day that the violation continues. A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a BOI report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
Resources
