Enacted by Congress in 2021, the Corporate Transparency Act (“CTA”) will become effective on January 1, 2024. The purpose of the CTA is to increase transparency by identifying the individuals controlling and owning certain entities to prevent money-laundering, terrorist financing, tax evasion and other illegal activities through the use of anonymous shell companies. The CTA seeks to accomplish this transparency by creating a national registry of beneficial ownership information for owners of most entities created or registered to do business in the United States (“Reporting Companies”). These Reporting Companies will be required to report personal information about the individuals who own and control such entities (“Beneficial Owners”) to the US Department of the Treasury’s Financial Crimes and Enforcement Network (“FinCEN”). Additionally, it will require entities formed after January 1, 2024 to provide personal information regarding both the individual who files the formation documents for the entity as well as the person who directs the filing of the formation documents for the entity (“Company Applicants”). The required information is filed in the form of a Beneficial Ownership Information (“BOI”) report through FinCEN’s Beneficial Ownership Secure System.

A Reporting Company subject to the CTA is any entity that is either (i) created by filing paperwork with a Secretary of State or any similar office under the laws of any U.S. state or Indian Tribe or (ii) a foreign company registered to do business in the United States, unless it falls under one of several exceptions. Entities that are exempt from the CTA’s reporting requirements include, among others, (i) companies employing more than 20 full-time employees and having more than $5 million in annual gross receipts and an operating presence at a physical location within the United States, (ii) charities, (iii) entities that are already subject to significant governmental regulation and (iv) inactive entities that meet certain requirements (which requirements include that the entity must not own any assets). Single-owner entities that are ignored for federal income tax purposes are nonetheless subject to the CTA and must file a BOI report if they meet the definition of a Reporting Company.

The BOI report must include the Reporting Company’s name (and any alternative names), address, state of formation and tax identification number, as well as the full legal names, dates of birth, residential addresses and identification numbers from a state-issued form of identification (as well as a copy of such form of identification) for each Beneficial Owner and Company Applicant. A Beneficial Owner is any individual who exercises substantial control over the Reporting Company or owns or controls at least 25% of the ownership interests of the Reporting Company. Beneficial Owners include trustees and certain beneficiaries and grantors of trusts holding ownership interests in a Reporting Company.

The deadline for Reporting Companies to file a report will depend upon when the entity was created (in the case of domestic Reporting Companies) or registered (in the case of Foreign Reporting Companies). Reports for entities created or registered prior to January 1, 2024 must be filed with FinCEN no later than January 1, 2025, while entities created or registered on or after January 1, 2024 and before January 1, 2025 must file their report no later than 90 days from the date of creation or registration of the entity. Entities created or registered on or after January 1, 2025 must file their report within 30 days of creation or registration of the entity. Any updates or corrections to reported information must be filed with FinCEN no later than 30 days after the change in information or of becoming aware of any incorrect information.

The Reporting Company itself is responsible for filing the BOI report with FinCEN. The Reporting Company must also update and/or correct any of the information reported to FinCEN. At the time of filing the BOI report, the Reporting Company may request a FinCEN Identifier Number. A Beneficial Owner or Company Applicant may also separately obtain their own personal FinCEN Identifier Number through the FinCEN website by providing the required personal information directly to FinCEN rather than to the Reporting Company. They may then provide such FinCEN Identifier Number to the Reporting Company to provide in such entity’s BOI Report in lieu of providing their personal information. The individual would then be responsible for updating and correcting their own information instead of the Reporting Company.

Failing to file a BOI report with FinCEN can result in penalties including fines and imprisonment. For more information regarding the CTA, visit the following links for FinCEN’s Small Entity Compliance Guide and Beneficial Ownership Information:

FinCEN Website Information (external link)

Small Entity Compliance Guide (external link)

It should also be noted that the New York State legislature passed the New York LLC Transparency Act in June 2023, which is presently awaiting Governor Hochul’s review and signature. This law would impose similar requirements on limited liabilities companies formed or registered to do business in New York, and would take effect 365 days after it is signed by the Governor.

This alert is intended for informational purposes regarding a potential reporting requirement and is not intended to constitute legal advice. Please consult with your corporate secretary or legal counsel about this reporting requirement, whether it affects you, and your responsibilities to ensure compliance with the CTA.