The Corporate Transparency Act (CTA), which came into effect January 1, 2024, requires that “reporting companies” doing business in the United States disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Reporting companies formed or registered in the United States prior to January 1, 2024 must file their initial beneficial ownership information (BOI) reports by January 1, 2025. Such reporting companies should begin preparing now to ensure compliance by the deadline.

This alert summarizes key information about the CTA and what companies should be doing now to prepare for the upcoming deadline. For further information, you can view our prior alert covering the CTA; you can also find industry specific alerts in connection with the CTA, available here and here.

1. Who Is Subject to CTA Reporting?

The CTA mandates that certain “reporting companies” disclose information about their beneficial owners to FinCEN. A “reporting company” is defined to include corporations, limited liability companies, and similar entities created or registered to do business in the United States. The CTA applies to most private companies, but there are exemptions for specific types of heavily regulated entities, such as large operating companies, publicly traded companies, banks, and tax-exempt nonprofits.

2. Reporting Deadlines

Deadlines to submit BOI reports are as follows:

• Reporting companies created or registered before January 1, 2024 must file their initial BOI report on or before January 1, 2025.
• Reporting companies created or registered on or after January 1, 2024 must file their initial BOI report within 90 days after formation or registration. 
• Reporting companies created or registered on or after January 1, 2024 must file their initial BOI report within 30 days after formation or registration.

In addition, reporting companies must update their BOI reports within 30 days after learning of an inaccuracy in or changes to the disclosed information (e.g., a change in the name or address of a beneficial owner or the appointment of a new senior officer).

3. What Information Must Be Reported?

BOI reports must include information about the reporting company and its beneficial owners, which are individuals who, directly or indirectly, either (a) own or control at least 25% of the ownership interests of a reporting company; or (b) exercise substantial control over a reporting company.

BOI reports must contain the following information for the reporting company: legal name, trade name or DBA names, current business address in the United States, jurisdiction of formation or registration, and tax identification number.

BOI reports must contain the following information about each beneficial owner: full legal name, date of birth, current residential address, and the unique identify number from and image of a U.S. or foreign passport, state driver’s license, or an identification document issued by a state, local government, or tribe.

4. Steps to Take Now

Given the tight timeline to file BOI reports by January 1, 2025, existing reporting companies should take the following steps as soon as possible:

• Review your corporate structure to determine which entities qualify as “reporting companies” under the CTA.
   
• For each reporting company, determine whether any reporting exemption applies.
   
• For each reporting company that is not exempt:
  • Identify the beneficial owners and compile the information required to be disclosed for each beneficial owner;
  • Compile the information required to be disclosed for the reporting company itself; and
  • File the BOI report using FinCEN’s e-filing system.
     
• Review and update corporate governing documents and policies to facilitate compliance with CTA reporting requirements. For example, consider whether to include provisions in shareholder agreements and operating agreements that require owners and management to provide their personal information in order for the reporting company to comply with its CTA obligations.
   
• Develop a system to ensure ongoing compliance with the CTA. FinCEN requires that reporting companies file updated and corrected BOI reports within 30 days after any change to information or learning of an inaccuracy in a prior BOI report. Thus, it is important for companies to delegate responsibilities with respect to CTA compliance and develop procedures for collecting and maintaining beneficial owner information (and for new companies, company applicant information).

5. Penalties for Non-Compliance

Failure to comply with CTA reporting requirements may result in severe civil and criminal penalties, including civil penalties of up to $500 per day (adjusted annually for inflation) and criminal penalties of up to $10,000 and/or up to 2 years imprisonment.

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All companies, regardless of industry, should make sure they are ready to timely comply with the CTA, unless an exemption applies.