The Corporate Transparency Act (“CTA”) was enacted by the Congress in 2021 to prevent money laundering, terrorism financing and other illicit activities. Reporting mandated by the CTA affects most domestic or foreign privately held corporations, limited liability companies, limited partnerships or similar business entities. A business entity created by the filing of a document with a secretary of state or similar office under the law of a state or under the law of a foreign country followed by a registration to do business in the United States will generally be subject to the CTA reporting requirements. Currently, CTA rules provide 23 exemptions, most of which involve entities already subject to regulation by governmental authorities. Under the CTA, the affected business entities are referred to as “reporting companies.” The reporting companies’ governing bodies, including boards of directors and managers of limited liability companies, need to take proactive steps to ensure compliance within the timeframe and deadlines set by the CTA and applicable regulations.
Each reporting company will be required to complete and submit a beneficial ownership report (“BOI report”) with the Financial Crimes Enforcement Network (“FinCEN”), a bureau within the U.S. Department of the Treasury.
The BOI reports will provide:
- identifying information on the company legal name, trade name and “DBA,”
- address for principal place of business of the company,
- jurisdiction in which the company was formed (or, for a foreign reporting company, the state, territory or tribal jurisdiction where it first registers),
- the company’s EIN, and
- information pertaining to the company’s beneficial owners and, if applicable, to the company’s applicants: (a) their respective legal names, (b) their date of birth, (c) their current address, (d) ID number (passport, driver’s license, etc.), and (e) image of document with ID,
For purposes of the CTA a “beneficial owner” is an individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25% of the ownership interests of a reporting company. This definition is broad and can include anyone who has the authority to appoint or remove certain officers or a majority of directors or who has direction or substantial influence over important matters at the reporting company. Note that while trusts (other than trusts created by a filing, such as statutory or business trusts) are themselves not required to report directly under the CTA, trustees or other trust fiduciaries, grantors retaining certain powers and certain trust beneficiaries could fall under the umbrella of beneficial owners with respect to 25% ownership interests in all reporting companies the trust owns.
A “company applicant” is any individual who files an application to form or register an entity under the laws of a state, including the person who directed the filing. The company applicant reporting applies exclusively to new reporting companies formed after January 1, 2024.
Note that individuals may also apply and obtain “FinCEN identifiers,” which can then be provided to FinCEN on a BOI report in lieu of the required information about the individual.
For reporting companies already in existence prior to January 1, 2024, the BOI initial report will be due by January 1, 2025. Proposed regulations issued on September 27, 2023, extend the period for which reporting companies formed on or after January 1, 2024, and before January 1, 2025, must file their initial BOI report to within 90 days of the company’s formation. Reporting companies formed on or after January 1, 2025, must file an initial BOI report within 30 days of the company’s formation. Failure to report the information required by the CTA can result in substantial civil and/or criminal penalties.
On January 1, 2024, FinCEN will launch its cloud-based beneficial ownership information technology system to securely collect, process, and store that information and FinCen should start accepting the BOI reports. FinCEN is separately working to stand up a dedicated beneficial ownership contact center to respond to inquiries about the beneficial ownership reporting requirements, and to provide assistance to users encountering technical issues with the BOI reporting.
While no reporting under the CTA is required prior to January 1, 2024 and for most existing business entities the reporting deadline is January 1, 2025, business owners, asset managers, institutional investors, board of directors and limited liability companies’ managers should promptly commence initial CTA reviews in order to determine whether they are required to lodge the BOI reports in the first place and to identify beneficial owners and applicants and start collecting required information. For more information and updates on the reporting requirements and implementation of the CTA please visit the FinCEN dedicated website at https://www.fincen.gov/boi. Please also feel free to contact the attorneys at JKZ should you have additional inquiries.