Beneficial Ownership Reporting Requirements under the Corporate Transparency Act as of January 1, 2024
In 2020, Congress adopted the Corporate Transparency Act (the “CTA”) to strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder money or hide assets. Unless a newly formed or existing entity in the U.S. can claim an exemption, the CTA will require that they report to the U.S. government specified information about themselves and their controlling persons and owners. The CTA will go into effect on January 1, 2024. Existing companies will have to report by the end of 2024, and newly formed companies will have to report shortly after formation (90 days if during 2024, or 30 days after 2024).
On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued the final rule (the “Rule”) implementing the CTA’s beneficial ownership information (“BOI”) reporting provisions. Among other things, the Rule details who must file a BOI report, what information must be reported, and when a report is due. On September 18, 2023, FinCEN released a Small Entity Compliance Guide explaining in detail the reporting requirements in the Rule.
Which companies must report?
The Rule applies to any domestic or foreign limited liability company (LLC), corporation or other entity that is registered to do business in any state or tribal jurisdiction.
The Rule requires a reporting company to report basic information about itself and its “beneficial owners.” These generally include any individuals who, directly or indirectly, either (1) exercise substantial control over the reporting company, or (2) own or control at least 25% of the ownership interests of the reporting company.
· “Substantial control” captures anyone who is able to make important decisions on behalf of the reporting company. This includes senior officers and directors, anyone with authority to appoint senior officers or directors, and anyone who has any other substantial control of the company through contractual arrangements, ownership of voting shares, or otherwise.
· “25% ownership” is determined based on economic ownership and control. In most cases, determining 25% ownership will be simple. However, if ownership is tiered, or held in a trust or through a mix of exempt and non-exempt entities, determining the 25% owners will require a more detailed analysis.
Exemptions:
Exemptions from the CTA reporting requirements are available for various entities, including (A) companies that have at least 20 full time employees in the U.S., and have filed U.S. federal tax returns reporting more than $5,000,000 in gross receipts or sales in the prior year, (B) government entities, (C) banks and other financial institutions, such as broker-dealers and registered investment companies, registered investment advisers, and insurance companies, (D) accounting firms, (E) tax exempt companies, and (F) reporting issuers under the Securities Exchange Act of 1934.
Further Information
Attorneys at our firm are available to assist with any questions you may have regarding the CTA and related legal guidance. For additional information, please contact the undersigned or any other attorney at our firm.
This summary has been prepared for general informational purposes only and does not constitute legal advice. It is intended only as a summary of the CTA and does not contain all details applicable to the CTA. This summary may be construed as attorney advertising.