This is the second installment in our ongoing series of client alerts on the Corporate Transparency Act (the “CTA”). The previous client alert in this series discussed the reporting requirements of the CTA, which will go into effect on January 1, 2024.
As discussed in our previous client alert, the CTA requires “reporting companies” (most U.S. entities formed by a Secretary of State filing, including corporations and limited liability companies, and most foreign entities registered to do business with a Secretary of State) to report certain personal information about their “beneficial owners” and “company applicants” to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). Reporting companies generally must make a report within 30 days (90 days for reporting companies formed in 2024) of receiving notice of formation (or by January 1, 2025, for existing entities), and must update that report within 30 days of any change to the information previously reported, other than a change with respect to a company applicant.
Substantial penalties (civil penalties of up to $500 per day in addition to potential criminal penalties) may be imposed on a reporting company or its senior officers for failure to comply with the CTA.
Clients should consider taking the following actions in anticipation of the implementation of the CTA:
- determining which entities will be reporting companies, whether any exemptions apply, and, if not, determining the beneficial owners of such reporting companies;
- amending governance documents (bylaws, operating or limited liability company agreements, etc.) to address obligations of beneficial owners and to provide for remedies for a beneficial owner’s failure to comply;
- encouraging beneficial owners of reporting companies to apply for FinCEN identifiers, when available;
- addressing CTA compliance in acquisition agreements;
- developing a program to ensure that the company remains in compliance; and
- dissolving inactive entities.
Foreign clients should take additional precautions prior to forming (or registering) a reporting company in order to ensure that the reporting company can comply with its CTA obligations, including:
- ensuring that the responsible party for a reporting company formed in the U.S. has an active U.S. taxpayer identification number; and
- confirming that each beneficial owner of the reporting company has an acceptable, non-expired identification document.
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.