Corporate Transparency Act: New Reporting Requirement for Companies
The Corporate Transparency Act (CTA) took effect January 1. The Act is aimed at promoting transparency and preventing illegal activities such as money laundering and terrorism financing through the use of anonymous shell companies. The CTA introduces new reporting requirements for certain companies, requiring them to disclose “beneficial ownership” information to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Treasury Department.
The following is a brief summary of the key requirements for companies under the Corporate Transparency Act:
Who must register?
The Act primarily targets entities defined as “reporting companies.” This includes corporations, limited liability companies (LLCs), and similar entities that are formed or registered to do business in the United States. It excludes certain types of entities such as publicly traded companies, financial institutions, and entities that are already subject to substantial reporting requirements. It also excludes sole proprietorships, general partnerships, and some trusts.
Reporting of beneficial ownership information
Definition of “Beneficial Ownership”
Companies covered by the Act are required to disclose information about their beneficial owners. Beneficial owners are either:
• individuals who directly or indirectly control or own, directly or indirectly, at least 25% of the ownership interests (stock, membership interest, voting interest, etc.)
• individuals with significant managerial or decision-making control over the reporting company (equity ownership not needed for this test)
Reporting timeline
Reporting companies formed on or after January 1, 2024 must submit beneficial ownership information (the “BOI Report”) to FinCEN within 90 days of the date of formation or registration. Companies that have been formed before January 1, 2024, must file the BOI Report by January 1, 2025. Companies created after January 1, 2025, will have only 30 days to file.
All reporting companies must promptly update any changes in ownership or control within one year of the changes.
What information must companies report?
Reporting companies must provide the following details about each beneficial owner:
• Full legal name and address of company, state of formation, tax ID number
• Full legal name of all beneficial owners
• Date of birth of each beneficial owner
• Current residential or business address of each beneficial owner
• A unique identifying number from an acceptable identification document, such as a driver’s license or passport.
Who reports the information for the company?
A Company Applicant must report the required information. A Company Applicant is an individual involved with forming the reporting company, either:
• The person who directly filed the document forming the company (Article of Organization, Articles of Incorporation, etc.), or
• If more than one person was involved in the filing, the person primarily responsible for directing or controlling the filing
Where to file the BOI Report?
Reporting companies may file the BOI Report electronically with FinCEN using its secure filing system. Here is a link to FinCEN’s filing website: https://www.fincen.gov/boi.
What privacy protections are there for reported information?
To address concerns about the privacy and security of the information submitted, the Act includes provisions to safeguard the confidentiality of the reported data. Access to beneficial ownership information is restricted to authorized government officials and entities, subject to privacy and data security protocols.
Enforcement and Penalties
FinCEN can impose civil and criminal penalties for non-compliance. Fines for willful violations can be as high as $10,000, and imprisonment for up to two years may be imposed for knowingly providing false or fraudulent information.
Conclusion
It is crucial for affected companies to understand and comply with the reporting obligations outlined in the Act to avoid potential legal consequences. As regulations evolve, companies should stay informed about any updates or changes to ensure ongoing compliance with the Corporate Transparency Act.
If you have any questions about complying with the Corporate Transparency Act, please contact Mark Spitz at Spitz Legal Counsel LLC, at 720-575-0440, or mark@spitzlegalcounsel.com.