The Corporate Transparency Act (CTA) introduces beneficial ownership reporting requirements effective January 1, 2024, for new and existing companies. Below is an overview of the new reporting obligations imposed by the CTA.
Unless an exemption applies (see below), any corporation, limited liability company (LLC), limited partnership (LP) or other entity formed or registered to do business by filing a document with a US state or territory or an Indian tribe will be a “reporting company.”
WHO IS EXEMPT?
There are 23 exemptions from the CTA reporting requirement. These include, among others, public companies, broker-dealers, Securities Exchange Act-registered entities, investment advisers, insurance companies, pooled investment vehicles, tax exempt entities, large operating companies, certain wholly owned subsidiaries and inactive entities.
WHAT GETS REPORTED?
Reporting Company: Name, “doing business as” name, business address, jurisdiction and tax identification number.
Beneficial Owners: Name, date of birth, residential address and photo ID.
Company Applicants (only for reporting companies formed or registered on or after January 1, 2024): Name, date of birth, business or residential address, and photo ID.
WHO IS A BENEFICIAL OWNER?
Control Persons: An individual who, directly or indirectly, exercises substantial control over the reporting company (can be more than one):
Includes senior officers (e.g., president, chief executive officer, chief operating officer, chief financial officer, general counsel).
Captures anyone who is able to make important decisions on behalf of the reporting company, including the power to appoint and remove senior officers or a majority of the board of directors (or similar governing body).
25% Owners: An individual who, directly or indirectly, owns or controls at least 25% of the ownership interests of the reporting company.
Ownership interests include equity (stock, LLC/LP interests, etc.), instruments convertible into equity, profits interests, options, etc.
WHO IS A COMPANY APPLICANT?
The individual who directly files the document that forms or registers the reporting company and the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing. No more than two company applicants per company.
WHAT ARE THE REPORTING DEADLINES?
Existing Reporting Companies (formed or registered before January 1, 2024): Initial report due by January 1, 2025.
New Reporting Companies (formed or registered on or after January 1, 2024): Initial report due within 90 days of formation or registration, but companies formed or registered after January 1, 2025, will need to file an initial report within 30 days of formation or registration.
Updates and Corrections: Changes to reported information must be reported within 30 days of the change. No updates for changes to company applicant information.
HOW TO REPORT?
Reports can be filed through the portal maintained by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). See www.fincen.gov/boi.
The cloud-based system will meet the highest Federal Information Security Management Act level.
WHO GETS ACCESS TO THE FinCEN DATABASE?
Federal agencies engaged in law enforcement, national security or intelligence activity to advance such activity.
State, local and tribal law enforcement for use in criminal or civil investigations and with authorization from a court of competent jurisdiction.
Certain foreign agencies engaged in law enforcement, national security or intelligence activity.
Financial institutions subject to customer due diligence requirements, solely with the consent of the reporting company, to facilitate compliance with such requirements, and their regulators.
Certain Treasury officers and employees, including for tax administration.
WHAT HAPPENS IF I DON’T REPORT? WHAT IF MY INFORMATION IS MISUSED?
There are civil and criminal penalties for willful reporting violations.
There are also civil and criminal penalties for unauthorized disclosure and use of information.
WHAT IS A FinCEN IDENTIFIER?
An individual may submit the required information directly to FinCEN and receive a unique FinCEN identifier, which the individual may provide to a reporting company in lieu of the required personal information.
Reporting companies can also obtain a FinCEN identifier.
WHERE DO I BEGIN?
Educate your company’s decisionmakers and leadership team.
Make the necessary changes and updates to your company’s org chart.
Identify potential beneficial owners.
HOW CAN McDERMOTT HELP?
Assess your company’s reporting obligations, eligibility for exemptions and compliance requirements.
Assist foreign and domestic entities with issue-spotting.
Provide education and training for legal and compliance teams.
Should you have any questions, please contact the authors of this article or your regular McDermott lawyer.