New for 2024: Compliance with the Corporate Transparency Act Necessary for Many Mintz Client
By William S. Perkins, Steve Ganis, Daniel O. Gaquin, Daniel B. Guggenheim
Clients with Limited Liability Companies, Corporations, and Other Entities Likely Impacted
Reporting requirements under the Corporate Transparency Act (CTA) are in effect beginning January 1, 2024. Under the CTA, many US entities will be required to provide the personal information of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a division of the US Treasury Department. The purpose of the CTA is to combat money laundering, terrorist financing, and other financial crimes by creating and maintaining a central database of the beneficial owners of legal entities. The public will not have access to the database; however, federal agencies will have access, as well as state and local law enforcement, financial institutions, and foreign law enforcement agencies in certain circumstances.
“Reporting Companies” Subject to the CTA
The CTA will apply to most entities, including corporations, limited liability companies, and limited partnerships that are formed or registered to do business in the United States by filing with a state-level office (Reporting Companies).
The CTA contains 23 exemptions, including an exemption for “large operating companies” having (i) more than 20 full-time, US-based employees, (ii) a physical operating presence in the US, and (iii) more than $5 million in US-sourced gross receipts or sales. Other exemptions include investment advisers registered with and venture capital fund advisers that report to the SEC, charitable organizations, and companies such as banks and insurance companies that are regulated by other federal agencies.
Unless an entity fits within a specific exemption, it will be a Reporting Company and must file under the CTA, even if the entity is not engaged in a trade or business.
Effective Date
The CTA has three key effective dates relating to initial reporting:
Reporting Companies formed or registered to do business on or after January 1, 2024, must report company and beneficial ownership information to FinCEN within (90) days of formation or registration.
Reporting Companies formed or registered on or after January 1, 2025, must report within (30) days of formation or registration.
Reporting Companies formed or registered before January 1, 2024, have until January 1, 2025 to report.
Information to be Reported — Initial Reports
For Reporting Companies, initial reports will include:
Information relating to the Reporting Company itself, such as its name, address, and EIN.
Information relating to the Reporting Company’s beneficial owners who generally are (i) individuals that exercise “substantial control” OR (ii) individuals who directly or indirectly own or control 25% or more of the Reporting Company.
“Substantial control” over the Reporting Company means the individual (i) is a senior officer (g., general counsel, chief executive officer, chief operating officer, etc.); (ii) has authority to appoint or remove certain officers or a majority of directors of the Reporting Company; (iii) is an important decision-maker; OR (iv) has any other form of substantial control over the Reporting Company.
Information relating to “company applicants” who are those individuals who assist in the formation of the Reporting Company (company applicant information need only be reported for Reporting Companies formed or registered on or after January 1, 2024).
Information to be reported generally includes the name, date of birth, residential address, and a copy of an identification document (such as a passport or driver’s license) for each such individual, or alternatively, a “FinCEN Identifier” (described below) can be reported.
Ongoing Reporting Requirements
In addition to the initial reporting requirements, Reporting Companies must also report changes to beneficial ownership information and changes to information on individuals who exercise substantial control within (30) days of any change.
How to File Reports
Reporting Companies must report to FinCEN electronically through FinCEN's secure online portal.
FinCEN Identifier
For privacy, a “FinCEN Identifier” can be obtained from FinCEN electronically through FinCEN’s secure online portal. A FinCEN Identifier is a unique identification number issued by FinCEN that can be provided to Reporting Companies in lieu of providing an individual’s personal information.
Next Steps
Clients should begin taking steps now to get ready to comply with the CTA's reporting requirements based on the key effective dates for initial reporting described above. Please contact your Mintz team to discuss any questions you may have about the CTA implications to you and your entities.