Beginning January 1, 2024, the Corporate Transparency Act (the “Act”) will require certain corporations, limited liability companies, and partnerships that are registered to do business in the United States to report information about "beneficial owners" to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
The purpose of the Act is to enable the U.S. government to identify the owner(s) of small to medium sized business entities not otherwise required to report their ownership information to another federal agency.
Beginning January 1, 2024, newly created companies that fall under the umbrella of the Act will be required to report their ownership information immediately after formation. Existing entities will have until January 1, 2025 to report the required information.
Primary responsibility for compliance falls on the "Reporting Company." Reporting Companies are certain non-publicly traded, domestic and foreign entities (but only foreign entities registered to do business in the United States). The Act defines a “domestic Reporting Company” as an entity that is a limited liability company, a corporation, a partnership, or other entities created by filing a document with a secretary of state or a similar office.
The Act requires that two categories of individuals report: (1) the Beneficial Owners, and (2) "Company Applicants" individuals who apply with a secretary of state forming a business entity.
A Beneficial Owner is a person who owns, directly or indirectly, 25% or more of a Reporting Company, or exercises substantial control over the entity (e.g. a manager or general partner). Beneficial Owners who satisfy either of those two components must report. The following persons are excluded from reporting:
- A minor child, provided that a parent or guardian’s information is reported
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
- An individual acting solely as an employee of a reporting company in specific circumstances
- An individual whose only interest in a reporting company is a future interest through a right of inheritance
- A creditor of a reporting company
“Company Applicants” are the individuals who directly file or oversee the filing by another person of the document that creates the reporting company. In the case of a foreign reporting company, however, a company applicant is an individual who files the document that registers the company to do business in the U.S.
The Reporting Company must provide the following information:
- Its legal name, any trade name, or "doing business as" name
- Its address
- The Jurisdiction where it was formed or first registered
- Its taxpayer identification number
For each Beneficial Owner and each Company Applicant the Reporting Company must report the following information:
- Full legal name
- Date of birth
- Residential street address and
- A unique identifying from acceptable identification document (e.g., passport or driver’s license), along with an image of the document used
All business entities established on or before January 1, 2024 and now in existence must file their initial reports no later than January 1, 2025. In addition, within 30 days of any change, material or not to reporting information, the Reporting Companies must file an updated report. However, changes to Company Applicant information do not require filing an updated report.
The Act exempts 23 specific types of entities from reporting. The theory is that many of these entities are already subject to substantial federal/state regulations and already provide beneficial ownership information to a governmental authority. Following entities are exempt from the Act's reporting requirements:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit Union
- Depository Institution Holding Company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entities
- Investment company or investment advisor
- Venture capital fund advisor
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public entity
- Financial market utility
- Pooled Investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company*
- Subsidiary of certain exempt entities
- Inactive entity
* A large operating company is any entity that (a) employs more than 20 full time employees in the Unites States, (b) has an operating presence at a physical office within the U.S. and, (c) filed a federal income tax or information return in the U.S. for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net return and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the U.S., as determined under Federal income tax principles.
FinCEN anticipates that all information will be filed electronically through a portal hosted on its website. The portal will be designated the "Beneficial Ownership Secure System" and called BOSS.
Pursuant to proposed regulations, FinCEN would limit access to BOSS and the information collected. The proposed regulations would implement strict protocols on security and confidentiality required by the Act to protect sensitive and personal information.
Reporting Companies that do not comply with the Act may incur a civil penalty of $500 per day until remedied and criminal penalties of up to $10,000 and/or two years in prison.
*Disclaimer: This FAQ has been prepared for informational purposes only, and is not offered, nor should be considered, as legal advice.