In 2021, the Corporate Transparency Act ("CTA") was enacted as part of the Anti-Money Laundering Act of 2020 in an effort to crack down on illicit finance and increase transparency as to who owns interests in various entities or is involved in their formation. The CTA establishes a beneficial ownership reporting requirement for most corporations, limited liability companies, and other entities created or registered to do business in the United States ("Reporting Companies").
NEW REQUIREMENTS FOR REPORTING COMPANIES
The CTA requires each Reporting Company to report information to the U.S. Treasury's Financial Crimes Enforcement Network ("FinCEN") about (i) the Reporting Company, (ii) individuals who exercise substantial control over the Reporting Company, (iii) certain direct and indirect owners of the Reporting Company, and (iv) with respect to Reporting Companies formed or registered on or after January 1, 2024, "company applicants."
For Reporting Companies formed or registered before January 1, 2024, these reports must be filed by January 1, 2025.
For Reporting Companies formed or registered on or after January 1, 2024, and before January 1, 2025, these reports must be filed within 90 days of receiving actual or public notice of creation or registration, whichever is earlier.
For Reporting Companies formed or registered on or after January 1, 2025, these reports must be filed within 30 days of receiving actual or public notice of creation or registration, whichever is earlier.
WHAT COMPANIES NEED TO DO NOW
1) Determine whether the company was either (i) created by the filing of a document with a secretary of state or similar office under the law of a state, or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state.
2) If the answer to 1 is "yes," then determine whether any of the 23 exemptions from being a Reporting Company apply (FinCEN's list of exemptions with short titles is found below). You should carefully review the qualifying criteria before concluding that an exemption is available. For instance, although the short title for Exemption No. 15 is "Accounting firm," the exemption only applies to public accounting firms registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002. Additional FAQs about Reporting Company exemptions, which have been provided by FinCEN, may be found here.
3) If an exemption is not available, then a Reporting Company should consider implementing the following as soon as possible in order to enable the Reporting Company to comply with its reporting obligations:
- Amend organizational documents and/or shareholder agreements to facilitate compliance with the CTA.
- Inform beneficial owners of the reporting obligations. (Note: FinCEN's Small Entity Compliance Guide expressly states that a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required beneficial ownership information ("BOI") report or to report incomplete or false BOI, including beneficial owners and company applicants).
- Adopt written policies and procedures concerning the collection, storage, monitoring, and reporting of information required to be reported under the CTA.
Additional Resources
- A further discussion of the CTA may be found here
- The final rule concerning reporting beneficial ownership information and statutory references may be found here
- FinCEN news releases concerning beneficial ownership information may be found here
CTA Exemptions:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.