Corporate Transparency Act

Commencing January 1, 2024 (unless delayed by legislation or regulation), all newly organized domestic corporations, limited liability companies or similar entities registered to conduct business in the United States are required within ninety (90) days after organization to register and file a report, relating to beneficial ownership, with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) resulting from the Corporate Transparency Act (CTA) enacted on January 1, 2021.

All companies that are currently in existence and organized before January 1, 2024 are  required to report beneficial ownership information to FinCEN on or before January 1, 2025.

The stated purpose of the beneficial owner reporting system for U.S. companies and foreign companies who conduct business in the U.S. is to combat money laundering, terrorist financing, and other illicit activities. The final regulations list 23 categories of exempt entities, for example, certain tax-exempt entities, and charitable trusts and large operating companies.

A beneficial owner is any individual who directly or indirectly either:

  • (a) exercisessubstantial control” over the reporting company; or
  • (b) owns or controls at least 25% of the ownership interests.

Ownership percentage alone is not conclusive. If you have written or other rights to assert substantial control over a company, for example if you can control major expenditures or have the right to vote to merge or dissolve a company, that type of power makes you a beneficial owner and requires you to report.  A beneficial owner can be an officer, CEO, CFO, COO, or a director in a named position. However, the title of a position is also not definitive if a party has substantial control rights.

Moreover, the party who organizes a company or acts as a company’s registered agent on new filings now has additional obligations as it too is deemed a “reporting company”.

Reporting obligations include providing the information below and any future changes to any of the information, as well as supplying certain documents:

  1. Full legal name of each person that is a beneficial owner;
  2. Date of birth of each person;
  3. Complete physical address whether residential or work, but not a P.O. Box; and
  4. Copy of identification that contains a personal and unique identification number, for example a valid driver’s license, or non-expired out of state license, unexpired passport, unexpired state or government ID, or a foreign passport.

Note that information for a minor is not required as long as the parent’s information is reported.
In addition, the reporting company must provide its legal name, DBAs, tax identification number, the current street address of its principal place of business, and the jurisdiction where formed or registered.

There are substantial penalties for both noncompliance and fraud or failure to update information that include a five hundred dollar ($500) per day fine for failure to report or a report that is not complete with a maximum of ten thousand dollars ($10,000) and criminal penalties.   The failure to report complete or updated ownership information as it pertains to a reporting company may be problematic in terms of the penalties that may apply. We are hopeful that additional guidance will be issued to further address and clarify this issue. Please contact Leonard J. Witman, Catherine Romania, or Elaine Cohen for more information regarding the Corporate Transparency Act.