COMPLYING WITH THE CORPORATE TRANSPARENCY ACT

Starting on January 1, 2024, most private business entities will be required to report certain  information about owners and executives/high level managers to the Financial Crimes  Enforcement Network (“FinCEN”), a bureau of the United States Department of Treasury.

This article is meant to provide an overview of the Corporate Transparency Act to prepare business entities for compliance in 2024.  

Background  

The Corporate Transparency Act (the “CTA”) was enacted in 2021 as part of the National Defense  Authorization Act aimed at enhancing transparency and combatting money laundering, terrorism financing, and other illicit activities. The purpose of the CTA is to “better enable critical national  security, intelligence, and law enforcement efforts to counter money laundering, the financing of  terrorism, and other illicit activity” by creating a national registry of beneficial ownership  information for “reporting companies”. Put another way, the goal of the CTA is to prevent the  misuse of anonymous shell companies for illegal purposes.  

Entities Affected 

The CTA applies to a broad range of entities, including corporations, limited liability companies (LLCs), and other similar structures. However, certain types of entities are exempt, such as publicly traded companies, registered investment companies, non-profits, many general partnerships, and certain regulated entities. Those companies that are required to report to FinCEN are referred to as “Reporting Companies.”  

Reportable Information for Reporting Companies 

Each Reporting Company will need to report the following information to FinCEN: 

  • Full Legal Name of Company 
  • Trade Name of Company 
  • Current Business Address 
  • State of Formation of Company 
  • Unique identifying number for Company, either:
    • Taxpayer Identification Number 
    • Employee Identification Number 

 

If any of the above information changes, the Company must update FinCEN within 30 days.  

Companies also are required to submit information to FinCEN about the Company’s “Beneficial  Ownership Information” (referred to as BOI).

New companies formed after January 1, 2024, that are Reporting Companies under the CTA also must submit the same information for the “Company  Applicant” (defined below).

Beneficial Owners and Beneficial Ownership Information 

The CTA requires Reporting Companies to report BOI for the individuals who, directly or  indirectly, exercise substantial control over or receive substantial economic benefits from a legal entity. Practically speaking, you are a beneficial owner if you own 25% or more of the entity’s equity interests, or if you have significant managerial control.  

The following information must be reported to FinCEN for each Beneficial Owner and Company  Applicant: 

  • Full Legal Name 
  • Date of Birth 
  • Current Residential Street Address 
  • Unique identifying number and issuing jurisdiction form, and image of one of the  following non-expired documents:
    • United States Passport
    • State Driver’s License 

If any of the above information changes, an update must be filed with FinCEN within 30 days. 

Company Applicant  

The individual who directly files the formation document for the Reporting Company with the  state secretary of state is a Company Applicant. If that person is a third party (like an attorney,  paralegal, or employee of the Company acting at the direction of a Beneficial Owner), then the person most directly responsible for the formation of the new entity is also a Company Applicant. At most there are two (2) Company Applicants who must be identified. 

Reporting Deadlines 

Reporting Companies in existence before January 1, 2024, have until January 1, 2025, to report their initial information to FinCEN.

Starting January 1, 2024, all entities formed after the new  year and before January 1, 2025 will have 90 days to report their BOI to FinCEN. Any entities  formed after January 1, 2025, will have 30 days to report BOI to FinCEN. Failure to comply with  the reporting requirements and deadlines, including the deadlines for updating information, may result in severe penalties and even criminal liability.  

Conclusion 

The Corporate Transparency Act is a significant change to current United States corporate law about which all individuals with an interest in a business entity need to be aware. Owners and  managers of entities that are subject to the CTA also need to make plans for complying with the new law and implement such plans well before the applicable deadlines.  

To learn more about the CTA and its requirements, go to https://fincen.gov/boi.

At this time, FinCEN has not released the actual form that reporting companies will need to use starting January 1, 2024; however, once released, this article will be updated.