The Corporate Transparency Act (CTA) is a bipartisan law passed by Congress in 2020 requiring certain entities in the United States to disclose specific identifying information on the Beneficial Ownership of these required entities. FinCen, the Financial Crimes Enforcement Network (which is a part of the US Treasury Department) will be implementing this new requirement on January 1, 2024 in order to battle money laundering tactics. FinCen is currently in the process of creating a non-public database that will maintain this Beneficial Ownership information. It is our understanding that access to this information can be provided to certain law enforcement agencies for use in civil and criminal investigations, certain foreign law enforcement agencies, financial institutions for compliance purposes, and other federal agencies.
The CTA will not apply to every entity type and the requirement can vary from state to state. We are currently waiting on FinCen to provide further clarification on the requirement for the state-by-state designation, but below are the entities which this requirement will apply to.
- Any entity formed by filing a formation document (Limited Liability Company, Corporation, Sole Proprietorship, Limited Partnerships, LLP’s, Statutory Trusts, etc.) with the Secretary of State office or similar agency.
- Any entity registered as a foreign company or similar organization by way of filing with the Secretary of State office or similar agency.
Not only are the companies required to disclose their Beneficial Owners’ information but Reporting Companies must also disclose information such as the full name, DBA, address, jurisdiction of formation or registration, Tax ID number or other unique Tax ID number. Reporting Companies and Company Applicants may submit the required information directly with FinCen in order to receive a unique FinCen identifier and this will be used when reporting the company BO information to make the process slightly more simplified. The Report Company and Company Applicant is the company or individual who directly files the document that creates the entity, as well as any individual responsible for the filing directly.
There are total of 23 categories of exemptions with the below being some of those.
- Tax-exempt entities under Section 501(c) of the Internal Revenue Code (IRC)
- This does not include other sections under this code such as homeowner associations.
- Publicly traded companies;
- Banks and credit unions;
- Bank holding companies;
- Large operating companies with more than $5 million in annual gross receipts and more than 20 full time employees.
- The annual gross receipts amount must be on the most recent tax return.
- Security Exchange Act entities;
- Venture Capital Fund advisers;
- Insurance Companies;
- Tax exempt entities; etc.
If you are unsure whether your company falls under this requirement, we recommend seeking legal advice to ensure compliance is met.
Preliminary information from FinCen indicates that the below information will be required for the Beneficial Owner of the required entities.
- Full legal name;
- Date of Birth;
- Residential Address;
- Identification number from a driver’s license, passport, etc. (must be a government issued identifier);
- An image of the identification document.
As a general rule, the Beneficial Owner is an individual who controls at least 25% of ownership interest in said company, an individual who directly or indirectly exercised substantial control over the company. The Beneficial Owner can also include senior offices such as President, CFO, CEO, etc., amongst others. If you are unsure as to whom applies to this rule, we recommend seeking legal advice to ensure appropriate reporting is done.
For entities formed before January 1, 2024 FinCen will allow up to two full years for the company to adhere to the reporting of their Beneficial Owner(s). For entities formed from January 1, 2024 and on FinCen will require the company to report this information within 90 days of forming the entity. This means within 90 days of the official file date of the company. Additionally, this requirement also applies to amendments that need to be made when there is a change in the beneficial ownership of the company. FinCen allows the company 90 days to make these changes. There is no definitive information on how FinCen intends on enforcing this requirement but our understanding is fines will be imposed ranging from penalty fees up to $10,000 to criminal liability on senior officers for falsifying information for up to 2 years in prison.
FinCen is still working on providing more details on the processes and IBCF will keep you updated as that information is disclosed.