November 30, 2023
By: Kevin Levy and Natali Reyes
Commencing January 1, 2024, beneficial owners of U.S. companies and foreign companies registered to do business in the U.S. will be required to report ownership information to the U.S. government.
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) requires reporting to the Financial Crimes Enforcement Network (FinCEN) information, including personal information, of beneficial owners, company applicants, and reporting companies.
Reporting Companies formed before January 1, 2024, are required to report beneficial owner and reporting company information between January 1, 2024, and December 31, 2024.
Reporting companies formed in calendar year 2024 are required to report beneficial owner, company applicant, and reporting company information within 90 days of formation.
Reporting companies formed on or after January 1, 2025, are required to report beneficial owner, company applicant, and reporting company information within 30 days of formation.
Who is a beneficial owner?
An individual (whether a U.S. citizen/resident or a foreign individual) who owns or controls 25% or more of the ownership interest of a company, exercises substantial control, or receives substantial economic benefits from the assets of a reporting company. Minors, individuals acting as a nominee, intermediary, custodian, or agent, an individual acting solely as an employee (does not include a senior officer), an individual whose interest is inherited, and creditors that do not meet the beneficial ownership definition are exempt from the reporting requirements.
Who is a company applicant?
An individual who files formation documents for a reporting company and the individual who is primarily responsible for directing or controlling such filing.
What is a reporting company?
A company (including corporations, limited liability companies, limited liability limited partnerships, and other similar entities) created by filing a document with an applicable state entity or a foreign company formed under the laws of a foreign jurisdiction and registered to do business in the U.S. However, 23 types of entities are exempt from the reporting requirements. Click here for a list of the exempt reporting companies.
What information is required to be reported by beneficial owners, company applicants, and reporting companies?
- Full legal name;
- Date of birth;
- Current residential address for beneficial owners;
- Current business address for company applicants and reporting companies; and
- A unique identification number and an image from an acceptable identification document, or the individual’s FinCEN identifier.
Reporting companies in existence before January 1, 2024, do not need to disclose company applicant information.
All reporting companies are required to report updates to beneficial ownership information within 30 days of the change, including changes from the sale and purchase of interests, address changes, and minors becoming adults.
What unique identification numbers are acceptable?
There are five types of acceptable identification numbers:
- Non-expired U.S. passport;
- Non-expired state, local, or tribal identification document;
- Non-expired state-issued driver’s license;
- For individuals without one of the above documents, a non-expired foreign passport; and
- FinCEN identification number.
What is a FinCEN identification number?
A unique identifying number that FinCEN will issue to beneficial owners, company applicants, and reporting companies upon request and following confirmation of applicable personal information. In certain instances, a FinCEN identification number may be provided in lieu of providing personal information.
Will beneficial ownership information be publicly available?
The regulation states that the reported information will only be disclosed for law enforcement purposes and made available to comply with requests made by financial institutions for obligations imposed by law after the financial institution has received consent from the reporting company.
How will beneficial ownership information be reported?
FinCEN is in the final stages of developing and releasing an online portal, known as the Beneficial Ownership Secure System (BOSS), to receive, store, and maintain all information reported pursuant to the CTA.
What are the penalties for failing to timely report the required information?
Significant civil and/or criminal penalties, including fines of $500 per day and prison sentences of up to 10 years.
Are changes to the CTA rules possible?
Until FinCEN releases the final rules for the CTA, changes to the reporting requirements and related implications are possible. Monitoring the final rules and working with knowledgeable counsel is crucial to ensure proper and timely compliance.
Questions?
Contact GrayRobinson Business Law Section Chair Kevin Levy, Attorney Natali Reyes, or a member of the Business Law Section.