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Author Note: FinCEN issued a final rule on November 29, 2023, extending the deadline for certain reporting companies created on or after January 1, 2024, to file their initial beneficial ownership information reports with FinCEN from 30 days to 90 days. This article has been updated to reflect this change.

The Corporate Transparency Act (CTA) and its reporting requirements will impact an estimated 32 million companies in 2024. All companies, and their owners, should begin educating themselves on the requirements and gearing up to comply with the CTA as we approach 2024.

The CTA was passed into law in 2021 with the stated purpose of preventing wrongdoers from exploiting corporate entities for criminal gain, preventing terrorism, money laundering and other misconduct. To achieve this goal, the CTA requires that companies, with few exceptions, disclose their beneficial owners to the Financial Crimes Enforcement Network of the Department of Treasury (FinCEN). This reporting requirement will take effect in January 2024.

What entities are impacted?

The CTA will apply to all “reporting companies” with limited exceptions. The CTA defines reporting companies as follows:

Domestic Reporting Company – Corporations, LLCs and other similar entities created by filing with a state’s secretary of state or any similar office.

Foreign Reporting Company – Corporations, LLCs and analogous entities formed in a foreign country when they are registered to do business in the United States by the filing of a document with a state’s secretary of state or any similar office.

What entities are exempt?

The following 23 entities are exempt from the reporting requirements of the CTA: (i) Securities Issuers; (ii) domestic governmental authorities; (iii) banks; (iv) domestic credit unions; (v) depository institution holding companies; (vi) money transmitting businesses; (vii) brokers or dealers in securities; (viii) securities exchange or clearing agencies; (ix) other entities registered pursuant to the Securities Exchange Act of 1934 entities; (x) registered investment companies and advisers; (xi) venture capital fund advisors; (xii) insurance companies; (xiii) state licensed insurance producers; (xiv) entities registered pursuant to the Commodity Exchange Act; (xv) accounting firms; (xvi) public utilities; (xvii) financial market utilities; (xviii) pooled investment vehicles; (xix) tax exempt entities; (xx) entities assisting tax exempt entities; (xxi) large operating companies; (xxii) subsidiaries of certain exempt entities; and (xxiii) inactive businesses.

Who is a beneficial owner?

A beneficial owner is anyone who: (i) directly or indirectly exercises substantial control over a corporation or limited liability company; or (ii) owns 25% or more of the equity interests of a corporation or limited liability company.

Indicators that an individual exercises substantial control includes being a senior officer (excluding secretary and treasurer), the authority to appoint or remove certain individuals and the ability to direct, determine, or have substantial influence over decisions of the reporting company.

There are five exceptions to the definition of beneficial owner: (i) a minor child, given that a parent or guardian’s information is reported; (ii) an individual acting as nominee, intermediary, custodian or agent on behalf of another individual; (iii) an individual acting solely as an employee of a reporting company in specified circumstances; (iv) an individual whose only interest in a reporting company is a future interest through a right of inheritance; and (v) a creditor of a reporting company.

What information must be reported?

Each beneficial owner must be identified by: (i) their full legal name; (ii) date of birth; (iii) current residential address; (iv) a unique identifying number and the issuing jurisdiction from a valid United States passport, license, or identification card; and (v) an image of the document from which the unique identifying number was obtained.

Companies must report: (i) its legal name; (ii) any trade name or “doing business as” (d/b/a) name; (iii) current street address of its principal place of business if that address is in the United States or for companies whose principal place of business is outside the United States, the address from which the company conducts business in the United States; (iv) the jurisdiction of formation or registration; and (v) its taxpayer identification number.

For companies created or registered on or after January 1, 2024, the company must also report information for the company applicant(s). The company applicant is the individual who directly files the document that creates or first registers the reporting company and the individual primarily responsible for directing the filing. There can be up to two company applicants.

The following information about the company applicant must be reported: (i) their name; (ii) date of birth; (iii) business address; (iv) a unique identifying number and the issuing jurisdiction from a valid United States passport, license, or identification card; and (v) an image of the document from which the unique identifying number was obtained. Company applicant information will not need to be updated.

What is the timeframe for compliance?

Companies created or registered before January 1, 2024, will have until January 1, 2025, to file their initial report. Companies created on or after January 1, 2024, and before January 1, 2025, will have 90 days from the earlier of receiving actual notice of creation or the date on which a state secretary or similar office first provides public notice that the company has been created to file their initial reports. Companies created or registered on or after January 1, 2025, will have 30 days from notice of their creation or registration to file.

In addition, Companies will have 30 days after a change in the information previously submitted to FinCEN regarding a reporting company or its beneficial owners to submit an updated report.  This 30-day period also applies to any correction of a previous report and includes an obligation to update any change to the initial information submitted, including individual’s addresses.

What is the penalty for non-compliance?

The penalty for noncompliance is steep. Failure to comply with the CTA can result in a fine of $500 per day with a maximum fine of $10,000 per willful violation. The CTA also provides that violators are subject to up to two years of jail time.

What should you do?

All reporting companies should contact their lawyer or other professional to discuss the implications of the CTA for their specific situation. Importantly, reporting companies should not delay or worse, ignore the reporting requirements imposed by the CTA. In addition, to ensure they meet their reporting obligations, companies should consider amending their governing documents to obligate their beneficial owners to report changes in information that might create a reporting obligation.