New Law on Corporate Transparency Could Affect Your Business

By Brittany Oravec and Eric Ciazza  

Beginning January 1, 2024, the Corporate Transparency Act (CTA) will require certain companies (including many corporations, limited liability companies, and others) newly registered or formed in the United States to disclose certain information about the company, the company’s beneficial owners, and the company applicant to FinCEN, a bureau of the Department of Treasury, within 30 days of the entity’s formation.

Entities formed prior to January 1, 2024 must report the required information to FinCEN by January 1, 2025. Any changes to this information must be reported to FinCEN within one year of the change, with the exception of changes to company applicant information. The CTA applies to “reporting companies.” A reporting company is defined as a corporation, limited liability company, or other similar entity that is created by the filing of a document with a state Secretary of State or similar office, which includes incorporated homeowners associations. Also, unincorporated condominium associations that are registered with the State arguably are subject to CTA and should comply. A trust may also be treated as a reporting company, if it was formed for business purposes. Foreign entities are reporting companies if they are registered to do business in the United States.

Why Must You File With FinCEN?

The CTA became law on January 1, 2022. The CTA introduces new reporting requirements aimed at enhancing transparency in corporate ownership with the main goal of preventing financial crimes such as money laundering, illicit uses of anonymous entities, and terrorist financing. FinCEN has stated that it will maintain the information reported to it in a confidential, secure, and private database. If someone required to report fails to provide the required information, substantial penalties of $500 per day up to a total of $10,000 and up to two years imprisonment for willful failure to provide may be imposed. 

Your Company May Be Exempt

The following categories of entities are exempt from the CTA’s reporting requirements:

1. Public Companies: Entities that are already subject to reporting requirements under federal securities laws, such as those listed on stock exchanges.
2. Certain Financial Institutions: Entities regulated by specific federal agencies, including banks, credit unions, and registered investment companies.
3. Governmental Entities: Entities owned or controlled by federal, state, local, or tribal governments.

What Information Must Be Reported to FinCEN?

A reporting company must provide certain information regarding itself and its beneficial owners. “Beneficial owner” is defined as an individual who, directly or indirectly, exercises substantial control over a reporting company, or owns or controls at least 25% of the ownership interests of the reporting company (for homeowners associations or condominium associations, this is likely each member of the Board of Directors). Substantial control can be exercised through a variety of means, including managerial authority or significant influence over decision-making processes. Although a reporting company may be owned by another entity or through a series of entities, the CTA looks through the ownership structure to determine the ultimate beneficial owner, even if that individual is steps removed from the reporting company by a series of intermediate companies.

The following information must be reported for each reporting company and its beneficial owners:

For a Reporting Company:

1. Its legal name, and any trade names
2. Jurisdiction of formation or registration
3. Address of principal place of business
4. The unique identifier provided to the reporting company by the state or other applicable jurisdiction

1. Full legal name
2. Date of birth
3. Current residential or business address
4. A unique identifying number from an acceptable identification document (e.g., a non-expired passport, personal identification card, or driver’s license) and a picture of the document — when an identification document expires, a current document must be provided as a replacement

Reporting companies formed on or after January 1, 2024 are also required to report certain information regarding its company applicant, which is the person that actually submits the formation documents on behalf of the company. The reporting company must provide all the same information for its company applicant as for its beneficial owner(s).

Reporting companies and their beneficial owners must comply with the reporting requirements of the CTA, including any changes to the information previously reported, or face substantial penalties. Please contact Brittany Oravec, Eric Ciazza or Brian Bichy to help you navigate these new reporting requirements and avoid the consequences of not complying.