Effective January 1, 2024, the Corporate Transparency Act will require many U.S. companies, including privately-owned businesses, to provide annual disclosure of information about their beneficial owners with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Treasury Department.
The Corporate Transparency Act requires corporations, limited liability companies, and other entities created by filing a document with a Secretary of State or similar office (“Reporting Company”) to file a Beneficial Ownership Information Report (“BOI Report”) detailing information about their beneficial owners.
Beneficial owners include anyone who, directly or indirectly, either (1) exercises substantial control over a Reporting Company, or (2) owns or controls at least 25 percent of the ownership interests of a Reporting Company. “Substantial control” includes those with senior officer positions, authority over the senior officers or the board of directors, or the power to assert substantial influence over important matters of the company, such as reorganization or termination of the company. The term “ownership interest” is also broadly defined and aims to capture any and all instruments, contracts, arrangements, or mechanisms used to establish direct or indirect ownership.
A Reporting Company must include in its BOI Report the (a) full legal name, (b) date of birth, (c) current residential or business street address and (d) unique identifying number from an acceptable identification document (as well as a scanned copy of this underlying document) for each of its beneficial owners. Any company created after January 1, 2024, will also be required to include information regarding the individual who files the reporting entity’s formation documents.
The Corporate Transparency Act does provide a list of 23 types of entities that are exempt from the reporting requirements. Most notably, the exemptions include publicly traded companies subject to SEC regulations, most financial services, investment, accounting, or banking institutions that already report to agencies like the SEC and FDIC, and companies that employ more than 20 full-time employees in the US, have an operating presence at a physical office in the US, and have filed federal income tax or information return in the US for the previous year showing more than 5 million dollars in gross receipts or sales, including the receipts or sales of other entities owned by the entity or other entities through which the entity operates.
Reporting Companies created before January 1, 2024 will have one year (until January 1, 2025) to file the required information. Reporting Companies created on or after January 1, 2024 must file the required information within 30 days after receiving notice of an effective formation or registration. Companies formed or registered after the effective date of the rule are required to include information on both company applicants and beneficial owners. Any change to the information previously reported concerning a Reporting Company or its beneficial owners must be reported to FinCEN within 30 days of the date of the change and any inaccuracies must be reported within 30 days of when the Reporting Company becomes aware of the inaccuracy.
Businesses should carefully review and determine what their reporting requirements will be under the Corporate Transparency Act, as failure to properly report could result in significant civil or criminal penalties.
