New Reporting Requirements Created by the Corporate Transparency Act

Legal Alert

This alert provides a summary of new reporting requirements created by the Corporate Transparency Act (the “CTA”) and associated implementing rules. The CTA is a federal law that requires broad categories of legal entities created or doing business in the United States to file reports on themselves, their “beneficial owners,” and their “company applicants,” as defined in the CTA and associated rules. The Financial Crimes Enforcement Network (“FinCEN”), an agency of the Department of the Treasury, adopted final rules implementing the CTA on September 30, 2022, which will become effective on January 1, 2024. The text of the CTA is found at Title 31, Section 5336 of the United States Code and the final rules are found at Title 31, Section 1010.380 of the Code of Federal Regulations. Please see this link to the U.S. Federal Register online for the full text of the rules and commentary from FinCEN.

How will reports be submitted, and to whom?

Reports will be submitted to FinCEN, via an online form that FinCEN will provide.

How will reported information be used, and to whom will it be disclosed?

Reported information will not be publicly available. Reported information will be disclosed to a group of governmental authorities and financial institutions for limited purposes, as described in the CTA. Federal agencies may gain access to the information in furtherance of a national security, intelligence, or law enforcement activity. State, local, and tribal law enforcement agencies must obtain authorization from a court of competent jurisdiction before gaining access as part of a criminal or civil investigation. Foreign law enforcement agencies, prosecutors, and judges may gain access in specified circumstances. Financial institutions may gain access, with the reporting company’s consent, to facilitate the customer due diligence process, and financial industry regulators may gain access to perform oversight functions.

Who files reports?

Each entity that is a “reporting company,” unless exempt, is responsible for filing reports. A reporting company can be either a “domestic reporting company” or a “foreign reporting company.”

  • Domestic reporting company – any entity that is:
    • A corporation;
    • A limited liability company; or
    • Created by the filing of a document with a secretary of state or any similar office under the laws of a state or Indian tribe.
  • Foreign reporting company – any entity that is:
    • A corporation, limited liability company, or other entity;
    • Formed under the laws of a foreign country; and
    • Registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Which entities are exempt from the reporting requirement?

Various types of entities are exempt from the reporting requirements; generally, these are (i) large operating companies and (ii) entities that are already highly regulated or subject to reporting requirements, including public companies and other entities registered with the Securities and Exchange Commission, certain financial institutions, utilities, and tax-exempt entities.

A large operating company is an entity that satisfies all of the following requirements:

  • Employs more than 20 full time employees in the United States;
  • Has an operating presence at a physical office within the United States; and
  • Filed a federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.

Wholly-owned subsidiaries of exempt entities are also exempt.

While some companies will be exempt under at least one of the exemption categories, a large number of small- or medium-sized businesses, holding companies, and myriad other entities will be subject to the reporting requirements.

What is the deadline for filing reports?

Generally, initial reports are due 30 days after an entity becomes a reporting company, and updated reports are due 30 days after any change in information previously reported. Note, however, that domestic reporting companies that were created before January 1, 2024, and entities that became foreign reporting companies before January 1, 2024, have until January 1, 2025 to submit an initial report.

What information needs to be reported?

Different information needs to be reported for reporting companies and their company applicants and beneficial owners:

  • For reporting companies:
    • Full legal name
    • Any trade or DBA name(s)
    • Street address of principal place of business (if in the U.S.), or street address of primary location in the U.S. where business is conducted
    • State, tribal, or foreign jurisdiction of formation
    • If a foreign reporting company: state or tribal jurisdiction where the reporting company first registers to do business
    • IRS Taxpayer ID Number (“TIN”) (including an employer identification number, or “EIN”), or, where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the issuing jurisdiction
  • For company applicants and beneficial owners:
    • Full legal name
    • Date of birth
    • Either:
      • For a company applicant acting in the course of his or her business, a current business address, or
      • For all other individuals, a current residential street address
    • Unique identifying number from one of the following documents, and the issuing jurisdiction of the document:
      • Non-expired U.S. passport
      • Non-expired state, local, or tribal government identification document
      • Non-expired state driver’s license
      • Non-expired foreign passport, if none of the foregoing documents are available
    • Image of the document from which the unique identifying number was obtained

Who are company applicants?

Company applicants are any of the following individuals:

  • For a domestic reporting company, the individual who directly files the document that creates the domestic reporting company
  • For a foreign reporting company, the individual who directly files the document that first registers the foreign reporting company
  • For any reporting company, the individual who is primarily responsible for directing or controlling such filing, if more than one individual is involved in the filing

Thus, there will be at least one and at most two company applicants for each reporting company. Company applicant(s) will change depending on the circumstances, and may in many cases be employees of a business formation service or law firm.

Who are beneficial owners?

A beneficial owner is an individual who, directly or indirectly, either (i) exercises substantial control over a reporting company or (ii) owns or controls at least 25 percent of the ownership interests of a reporting company. Individuals who have “substantial control” include, but are not limited to, senior officers (including presidents, chief executive officers, chief financial officers, and general counsels) and individuals with authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body). Because this definition is so broad, even relatively simple organizational structures may pose challenging questions as to who qualifies as a beneficial owner.

What is a FinCEN identifier (“FinCEN ID”)?

A FinCEN ID is an optional identification number issued by FinCEN to reporting companies and individuals who choose to submit an application. An individual may submit an application for a FinCEN ID at any time; the application must include all of the information required to be reported in a beneficial ownership report for an individual. If an individual provides a FinCEN ID to a reporting company, the reporting company may simply report that individual’s FinCEN ID on its beneficial ownership report in lieu of listing out the information normally required. This may be useful for reducing the time it takes to file a report and avoiding disclosure of the sensitive personal information of the person providing the FinCEN ID to the reporting company. Reporting companies may submit an application at any time after first submitting an initial report, but there is currently no situation in which a reporting company can use its FinCEN ID. FinCEN ID holders must submit updated or corrected applications when information in an application changes or is inaccurate, on the same deadlines applicable to updated and corrected reports.

Who is liable for violations of the CTA, and what are the penalties?

Any individual or entity who willfully provides, or attempts to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, or willfully fails to report complete or updated beneficial ownership information, to FinCEN may be held liable for a civil penalty of up to $500 for each day that the violation continues, and criminal penalties of up to $10,000 and two years in prison. A person provides or attempts to provide beneficial ownership information to FinCEN, if such person does so directly or indirectly, including by providing such information to another person for purposes of a beneficial ownership report. A person fails to report complete or updated beneficial ownership information to FinCEN if a reporting company fails to report required information to FinCEN and such person either causes the failure or is a senior officer of the entity at the time of the failure.

Click here to download a PDF of Frequently Asked Questions related to the Corporate Transparency Act Beneficial Ownership Information Reporting.

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