Beginning January 1, 2024, the reporting requirements of the Corporate Transparency Act (the “CTA”) will take effect. Under the CTA, every “reporting company” must report certain information about itself, its “beneficial owners,” and “company applicants” to the Financial Crimes Enforcement Network (“FinCEN”).
A reporting company generally includes any currently existing or newly formed corporation, limited liability company, limited partnership, or other entity that is either:
- formed under the laws of a U.S. jurisdiction by a filing made with the secretary of state of a state (or similar office); or
- formed under the laws of a foreign jurisdiction and registered to do business in a U.S. jurisdiction.
Certain entities that might otherwise qualify as reporting companies — including certain large operating companies, as more specifically defined in the CTA — are exempt from the reporting requirements.
The beneficial owners of a reporting company include each natural person that owns or controls, directly or indirectly, 25% of the ownership interests of the entity and each person that exercises substantial control over the entity (including, for example, senior officers of the entity). The company applicants are certain individuals involved in the formation of the reporting company. For each beneficial owner and, for companies formed on or after January 1, 2024, each company applicant, a reporting company must report:
- such person’s FinCEN ID; or
- such person’s
- full legal name;
- date of birth;
- residential address (or business address, in the case of a company applicant only);
- unique identifying number from an acceptable identifying document; and
- a copy of such acceptable identifying document.
The reporting company will also be required to report its legal name, d/b/a name, street address, tax ID number, and jurisdiction of formation or first registration.
Reporting companies in existence before January 1, 2024, will generally have until January 1, 2025, to make an initial report under the CTA. Entities formed on or after January 1, 2024, will generally have 30 days from notice of formation or registration, as applicable, to make an initial report, but under proposed rules, reporting companies formed in 2024 will generally have this deadline extended to 90 days.
If any information reported to FinCEN (other than company applicant information) changes after an entity files a report, or if the entity becomes exempt from or subject to the requirements of the CTA, the entity generally has 30 days from the date of such change to file an updated report.
Penalties for failure to comply are significant. A person who willfully provides false beneficial ownership information or who willfully fails to report complete or updated beneficial ownership information to FinCEN:
- may be civilly liable for a penalty that accrues at the rate of $500 per day; and
- may also be fined up to $10,000 and imprisoned for up to two years.
All senior officers at any entity that fails to make a report required by the CTA may be liable for these civil and criminal penalties.
This is part one of a two-part client alert. Part two of this client alert will discuss some of the practical steps that should be considered in response to the CTA. To learn more about the CTA and to discuss how these requirements may impact your business, please contact AGG Corporate & Finance co-chair Sherman Cohen or your AGG relationship partner.