The Corporate Transparency Act (the “CTA”) takes effect on Jan. 1, 2024, and will require many companies to report certain beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), a division of the Treasury Department. These requirements are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity, while aiming to minimize the burden on entities doing business in the United States. All business owners, especially small business owners, should be prepared to report the required information before the filing deadline to meet the ongoing reporting obligations. To help prepare, below is an overview of its applicability and reporting requirements.
The CTA applies to all domestic entities that are formed by filing a document with a state, and all foreign entities registered to do business in the U.S. by such a filing. This includes corporations, limited liability companies, limited partnerships, limited liability partnerships, and business trusts.
Companies formed on or after Jan. 1, 2024 will have 30 days from the date of formation to file their reports. FinCEN has recently issued a Notice of Proposed Rulemaking to extend this filing deadline for new companies formed between Jan. 1, 2024, and Dec. 1, 2024, to 90 days. Companies formed before January 1, 2024 have until January 1, 2025 to report. Any updates or corrections to beneficial ownership information that was previously filed must be submitted within 30 days. While the reporting database is not available yet, FinCEN reports that companies will be able to file their reports electronically online and the filing will not require a fee.
Exemptions
Twenty-three types of entities are exempt from the beneficial ownership information reporting requirements. These entities include publicly traded companies, nonprofits, and certain large operating companies.
Who Must Report
If no exception applies, each reporting company must file a beneficial ownership report with FinCEN that includes identifying information for the reporting company itself, each “beneficial owner” and each “company applicant.” Companies formed before Jan. 1, 2024, are not required to report company applicant information.
The CTA and final rules provide additional guidelines for determining ownership and substantial control. These definitions are highly fact-intensive and must be determined on a case-by-case basis. The CTA also makes clear that ownership can be direct or indirect, including through a trust or ownership or control of an intermediary entity. Furthermore, the CTA’s regulations include catch-all provisions indicating that ownership and substantial control may take other forms not specifically listed.
A “company applicant” is any person who files a document creating a reporting company (such as the articles or certificate of incorporation), or who is responsible for directing or controlling the filing of such document by another person.
What Must Be Reported
The identifying information to be reported includes:
• For the reporting company, its full legal name and any assumed names, business street address, jurisdiction of formation and TIN/EIN; and
• For beneficial owners and company applicants, that person’s name, DOB, address, and a copy of an identifying document such as a driver’s license or passport.
Alternatively, beneficial owners and company applicants can submit the required information to FinCEN to obtain a unique “FinCEN identifier,” which can be used for reporting purposes rather than submitting their information to each reporting company.
Submitted information will be stored and maintained in a secure federal database and will not be publicly available or subject to FOIA. Access to the information will be permitted only to federal intelligence and law enforcement agencies, federal regulatory agencies, and financial institutions (with the reporting company’s consent, to comply with customer due diligence requirements).
Knowing or willful non-compliance with reporting requirements may result in penalties, including penalties for providing false or fraudulent information, as well as willful failure to report complete or updated information.
New developments regarding these regulations are released frequently, given there are many unanswered questions, including what the form used for reporting will look like. While there are some trusted third parties working on filing solutions for companies, please be aware of potential scams where third parties that are not authorized to collect or file this information reach out to you. You can find additional guidance materials and information by visiting www.fincen.gov/boi
