The Corporate Transparency Act (“CTA”) was enacted by Congress as of January 1, 2024, as a preventative and combative measure to money laundering, terrorist financing, corruption, tax fraud, and other illegal activity. The CTA requires certain entities (each a “reporting company”) to identify itself, its primary owners and officers (each a “beneficial owner”), and in some cases, certain professionals who helped to form or register the reporting company (each a “company applicant”). Information sufficient to identify the reporting company, its beneficial owners, and any company applicants (“beneficial owner information” or “BOI”) must be reported to the Financial Crimes Enforcement Network (“FinCEN”).

Both domestic and foreign entities that are created by filing documents with the secretary of state of any state (or the equivalent in any Indian Tribal Government) or that are registered to do business by the filing of documents with the secretary of state are reporting companies. There are exemptions from the reporting requirements for certain entities, including, without limitation, (1) entities that are tax-exempt under the Internal Revenue Code, (2) large operating companies, and (3) foreign pooled income vehicles.

The CTA requires that reporting companies file BOI on all its beneficial owners. Beneficial owners either (1) own 25% or more of the reporting company or (2) exercise significant control over the reporting company. The exercise of significant control in this context is defined as being an individual who (1) serves as a senior officer, (2) has authority over the appointment or removal of any senior officer or the majority of the board of directors (or similar body), or (3) can direct, determine, or have substantial influence over important decisions made by the reporting company. There are exemptions from the definition of beneficial owner, which include minor children, nominees, employees acting only in an employment context, inheritance rights, and creditors.

For reporting companies created on January 1, 2024, or after, the CTA requires that they file BOI on each company applicant. A company applicant is an individual who (1) directly files a document that creates a domestic reporting company, (2) directly files a document that first registers a foreign reporting company, or (3) is primarily responsible for directing such filing.

Under the CTA, reporting companies must report, for each beneficial owner and company applicant (as applicable), the following information: (1) full legal name, (2) date of birth, (3) current residential address or business street address for a company applicant, and (4) a unique identifying number from an acceptable identification document, such as a government-issued driver’s license or identification card or a passport. An image of the identification document is also required. Alternatively, individuals may provide the requisite BOI to the FinCEN and receive a FinCEN identifier.  The FinCEN identifier may then be provided to the reporting company.

Reporting companies must file an initial report, update the report if there are any changes to the information contained therein, and correct any inaccurate reports. Updates to information must be made within 30 days of the change.

Reporting companies created or registered before January 1, 2024, must file an initial report by January 1, 2025.

Reporting companies created or registered on or after January 1, 2024, must file an initial report 90 days after creation or registration.

If you have questions about whether your company is a reporting company or what exemptions might apply, you should talk with a business attorney.  If you are considering creating a business entity, you may want to consider the implications for reporting requirements of waiting until the beginning of 2024. Contact us today!

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