Client Alert: Corporate Transparency Act

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On January 1, 2024, the Corporate Transparency Act (“CTA”) will take effect. The CTA requires certain entities created by filing a document with a Secretary of State or any similar office (each a “Reporting Company”) to submit beneficiary ownership information (including certain personal identifying information relating to beneficial owners) to the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury. Reporting Companies may include corporations, LLCs, limited partnerships, LLPs, business trusts or statutory trusts. The CTA lists a number exempt entities that are not required to file beneficial ownership information reports with FinCEN, including governmental authorities, banks, credit unions, certain registered entities with the SEC, tax exempt entities and large operating entities (those entities based in the US with 20 or more employees and $5 million or more in annual gross receipts/sales), but the exemptions have specific qualifications that must be reviewed carefully.  

The CTA defines a beneficial owner of a Reporting Company as any individual who, directly or indirectly, “owns” or “controls” at least 25% of the “ownership interests” in a Reporting Company. In addition, the CTA provides that a beneficial owner includes any individual or entity that exercises “substantial control” over the Reporting Company, such as officers, directors and any individual or entity that directs, determines, or has substantial influence over important decisions made by the company. Note that under the “substantial control” definition, a Reporting Company can have multiple beneficial owners including individuals that do not possess actual ownership in the Reporting Company.

Any Reporting Company formed prior to January 1, 2024 must file its initial beneficial ownership information report on or before January 1, 2025.  A Reporting Company formed on or after January 1, 2024 must file its initial beneficial ownership information report within 30 days after the date of formation; provided, however, FinCEN recently amended its filing deadline for Reporting Companies formed between January 1, 2024 and January 1, 2025 from 30 days to 90 days.   In addition, a Reporting Company must file an updated beneficial ownership information report within 30 calendar days of any change to previously reported information.  This includes changes in information about the Reporting Company (such as a change of name of the Reporting Company); any change of information of a Reporting Company’s beneficial owners (such as a change of address of a beneficial owner); and a change in beneficial owners of the Reporting Company (such as the appointment or election of new officers and directors of the Reporting Company).  Failure to file initial and updated beneficial ownership information reports may result in civil and criminal penalties to the Reporting Company, including penalties of up to $10,000 and up to two years imprisonment for willfully failing to file beneficial ownership information reports.

 As we near January 1, 2024, we expect FinCEN to continue to provide further guidance as to the implementation of the CTA.  Should you have any questions regarding the CTA and whether it applies to your entity, please do not hesitate to reach out to us with any questions.