All business owners operating in the United States will have to file federal information reports beginning January 1, 2024.
The Corporate Transparency Act (the “CTA”) was enacted by Congress on January 1, 2021. The full text can be found here. Its stated purpose is to collect information on the ownership of entities operating within the United States for use by law enforcement and national security entities to prevent criminals, terrorists or corrupt oligarchs from hiding illicit funds in the United States.
Generally, it will require both domestic and foreign entities operating in the United States to file Beneficial Ownership Information Reports on the “beneficial owners” of the entities with the Department of the Treasury’s Financial Crimes Enforcement Network, (“FinCEN”). FinCEN, authorized to administer the collection of this information, has released the details of this information collection, which can be found in full here.
Who is required to file a report?
Any domestic reporting company is quite simply any corporation, limited liability company, or any other entity created by the filing of documents with a secretary of state or other similar office in any state of the United States.
A foreign reporting company is any entity formed under the law of a foreign jurisdiction that is registered to do business within any state of the United States.
Are there any exceptions?
Yes, there are exceptions to the reporting requirements for some entities:
- Any “large operating company” that employs more than 20 full-time employees in the United States, that has a physical office in the United States, and that has more than $5 million in gross receipts or sales on its federal income tax return
- SEC reporting companies
- Regulated financial services companies (i.e. banks, credit unions, investment advisors etc.)
- Insurance companies
- Accounting firms registered with the Public Company Accounting Oversight Board
- Tax-exempt entities
- Inactive entities that existed before January 1, 2020 and are not engaged in active business, not owned by a foreign person, do not hold any assets, and have not had a change in ownership or received or sent funds greater than $1,000 in the previous 12 months
- However, if such a company should fall out of compliance with these requirements, they must file a report in 30 days. Likewise, if a company that was not exempt eventually comes into compliance with these requirements, they can file a report stating they are now exempt.
Who is a beneficial owner?
In short, a beneficial owner is an individual who actually owns or controls an entity. To be more specific, Congress defined a beneficial owner as an individual who (exercises substantial control over a corporation or limited liability company, (2) owns 25% or more of the interest in a corporation or limited liability company, or (3) receives substantial economic benefits from the assets of a corporation or limited liability company.
What information is required in a Beneficial Ownership Information Report?
Each applicable entity, as described above, will be required to provide information about (1) the reporting company, (2) the reporting company’s beneficial owners, and (3) the “company applicant” who filed to create the company.
(1) Information about the reporting company:
- Full legal name
- Trade or “doing business as” names
- Current address (business address of company)
- Jurisdiction of formation
- Federal Taxpayer ID Number
(2) and (3) Information about the beneficial owners and company applicant:
- Full legal name
- Date of birth
- Current address (as used for tax registration purposes)
- Unique identification number and issuing jurisdiction (a passport of drivers’ license)
- Image of the document used for the ID number listed directly above.
When do I file a report?
The CTA’s reporting regulations will go into effect on January 1, 2024. FinCEN will not accept reports filed early. Beginning January 1, 2024, any entities formed after that date will have 30 days to file their initial Beneficial Owners Information Report. Any entities formed before January 1, 2024 will have until January 1, 2025 to file their initial report.
Will I have to file updated reports?
If there is any change in the information collected by the Beneficial Ownership Information Report, then an updated Beneficial Ownership Information Report is required. An updated report is required within 30 days of the change to the information in the report.
What happens with my information?
The information collected in Beneficial Ownership Information Reports will not be available to the general public and is not subject to Freedom of Information Act Requests. This information will be used only by federal law enforcement and intelligence agencies, the Department of the Treasury, and state and local law enforcement agencies.
For additional information about the Corporate Transparency Act, read the B&D October, 2022 blog here.
If you would like to discuss or have any questions on the content of this post, please contact us.
The attorneys at Boodell & Domanskis are available to answer your questions about any general issues concerning your business.