The Corporate Transparency Act, enacted as part of the National Defense Authorization Act for Fiscal Year 2021, represents one of the most significant federal regulatory changes for small businesses in decades. Beginning January 1, 2024, millions of companies will be required to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. While the effective date is still nearly a year away, business owners should begin preparing now, because the reporting requirements are broader than many expect and the penalties for noncompliance are severe.^[1]

What the CTA Requires

The CTA requires most domestic corporations, limited liability companies, and similar entities formed by filing a document with a secretary of state or similar office to file a beneficial ownership information (BOI) report with FinCEN. Foreign entities registered to do business in the United States are also covered. The report must identify each “beneficial owner” of the company—defined as any individual who, directly or indirectly, exercises substantial control over the entity or owns or controls at least 25 percent of the ownership interests.^[2]

For each beneficial owner, the report must include the individual’s full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document (such as a passport or state-issued driver’s license), along with an image of that document. Companies formed after the effective date must also report the same information for each “company applicant”—the individual who directly files the formation document and, if different, the individual who directs or controls the filing.

Who Is Exempt

The CTA provides 23 categories of exempt entities. The exemptions are generally designed to exclude entities that are already subject to substantial federal or state regulatory oversight and thus already report beneficial ownership information through other channels. Exempt entities include publicly traded companies, banks, credit unions, insurance companies, registered investment advisors, tax-exempt organizations, and certain large operating companies.^[3]

The “large operating company” exemption is the one most likely to apply to privately held businesses, but its requirements are stringent. To qualify, the entity must have more than 20 full-time employees in the United States, have filed a federal income tax return in the previous year reporting more than $5 million in gross receipts or sales, and have an operating presence at a physical office within the United States. All three criteria must be met. The vast majority of small and mid-sized businesses formed in Mississippi—including most LLCs, professional associations, and closely held corporations—will not qualify for any exemption and will be required to file.

Reporting Deadlines

FinCEN’s final rule establishes the following deadlines. Companies existing before January 1, 2024 will have until January 1, 2025 to file their initial BOI report. Companies formed on or after January 1, 2024 must file within 30 days of formation (this deadline was subsequently extended to 90 days for entities formed in 2024). Any changes to previously reported information must be updated within 30 days of the change.^[4]

These deadlines are not suggestions. The CTA imposes civil penalties of up to $500 per day for willful failure to file, and criminal penalties of up to $10,000 and two years’ imprisonment for willful violations. While FinCEN has indicated that it will take an initially measured approach to enforcement, the statutory penalties are real and business owners should not assume that late or incomplete filings will be overlooked.

Practical Considerations for Mississippi Business Owners

The CTA will affect hundreds of thousands of Mississippi LLCs and corporations. Many of these entities were formed for legitimate but routine purposes—holding real estate, operating a family business, managing investments, or structuring estate plans—and their owners may be entirely unaware of the new reporting obligation. This is particularly true for holding companies, single-member LLCs, and entities that do not file their own tax returns.

Business owners should begin taking several steps now. First, inventory all entities in which you hold an ownership interest or over which you exercise substantial control. Many business owners and families have multiple LLCs and corporations, and each one may require a separate BOI report. Second, determine whether any exemptions apply. Third, gather the required identification documents for each beneficial owner and company applicant. Fourth, establish a process for monitoring changes—such as changes in ownership, control, or the personal information of a beneficial owner—that would trigger a 30-day update obligation.

We also anticipate that the CTA will create practical complications for estate planning structures. Irrevocable trusts that own LLC interests, for example, may raise questions about who exercises “substantial control”—the trustee, the trust protector, or the beneficiaries with distribution or withdrawal rights. FinCEN’s final rule provides some guidance on trust-related reporting, but the application to specific trust structures will require careful analysis.

The Corporate Transparency Act is coming. The January 2024 effective date may feel distant, but given the scope of the reporting requirements and the number of entities affected, beginning the compliance process now is the prudent course. We will continue to monitor FinCEN’s implementation guidance and will provide updates as the effective date approaches.