The Corporate Transparency Act (CTA) and its requirements for privately held companies to report their beneficial ownership information went into effect on January 1, 2024. The CTA requires most corporations, limited liability companies, and other entities created or registered to do business in the United States to report information about their beneficial owners to the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Among other things, the beneficial ownership reporting is intended to make it more difficult for criminals, organized crime rings, and other illicit actors to hide their identities and launder money through the United States financial system.

Reporting Deadlines

The most immediate impact of the CTA will be on entities formed on or after January 1, 2024. For the 2024 calendar year, newly formed entities will have 90 days from the date they are formed to submit their initial beneficial ownership report if they are subject to reporting. This 90-day deadline is an extension of the original reporting deadline that would have required reporting within 30 days, and as of now it only applies to entities formed this year.

Companies required to submit reports that were already in existence or registered to do business as of January 1, 2024, must submit their initial beneficial ownership report to FinCEN by January 1, 2025. Beginning January 1, 2025, reporting companies created or registered to do business will have 30 calendar days to file their initial beneficial ownership report.

The time period for filing the initial beneficial ownership report runs from the time the reporting company receives actual notice that its creation or registration is effective or after the secretary of state or similar official provides public notice of its creation or registration, whichever is earlier. Beneficial ownership reports must then be updated within 30 calendar days of a change to the beneficial ownership information or 30 days upon becoming aware of or having reason to know that inaccurate information was previously filed.

Who has to report beneficial ownership information?

Under the CTA, a “reporting company” must report certain beneficial ownership information to FinCEN. The CTA defines a “reporting company” broadly but then exempts certain types of entities. All privately held corporations, limited liability companies and similar entities organized in any state, as well as foreign companies registered to do business in the United States, will be required to report information about their beneficial owners to FinCEN. Although not explicitly stated in the CTA, limited partnerships, limited liability partnerships, limited liability limited partnerships, and business trusts that are formed within the United States are considered “similar entities.” Public companies, i.e., companies that have issued a class of securities registered under Section 12 of the Securities Exchange Act of 1934 or that are required to file reports under Section 15(d) of that act and their controlled subsidiaries are exempt from reporting. Other entities exempt from reporting include:

• Governmental entities and public utilities;
• Banks, bank holding companies, and credit unions;
• Broker-dealers and registered investment advisors;
• Registered investment companies and certain pooled investment vehicles;
• Insurance companies;
• Registered public accounting firms;
• 501(c) non-profit entities; and
• Entities owned or controlled by one or more of the exempt entities.

Most importantly, companies with more than 20 full-time employees in the Unites States, more than $5 million in gross receipts or sales inside the United States, and an operating presence at a physical office in the United States are exempt from reporting.

FinCEN has published the Small Entity Compliance Guide to assist organizations preparing for compliance with the CTA. The guide provides a helpful framework, checklists and other tools for organizations to understand the beneficial ownership reporting requirements of the CTA.

Who is a beneficial owner?

A “beneficial owner” of a reporting company is defined by the CTA as an individual who, directly or indirectly, (i) exercises substantial control over the reporting company, or (ii) owns or controls 25% or more of the ownership interests of the reporting company. The term does not include a minor child; a person acting as a nominee, intermediary, custodian, or agent on behalf or another person; a non-officer employee whose interest in an entity is solely through the individual’s employment status; a person whose only interest in an entity is through a right of inheritance; or a creditor who would otherwise meet the definition of a beneficial owner solely through rights to payment.

What is substantial control?

The final rule defines “substantial control” to include:

• Service as a senior officer of the reporting company;
• Authority over the appointment or removal of any senior officer or a majority of the members of the board of directors (or similar body);
• Direction, determination, or substantial influence over important decisions made by the reporting company; and
• Any other form of substantial control over the reporting company.

What information regarding beneficial owners must be reported?

A reporting company will be required to report 1) the beneficial owner’s full legal name, date of birth, current residential or business street address, and a unique identifying number from a non-expired identification document and a photo of such document; or 2) the individual’s FinCEN identifying number. Acceptable identification documents include United States passports, state-issued driver’s licenses, and state identification cards. If the beneficial owner does not hold any U.S.-issued identification documents, a foreign passport number is sufficient.

How is beneficial ownership information reported?

Reporting companies are required to submit their beneficial ownership information reports by the applicable deadline through FinCEN’s website. Filing is free, and the website also includes filing instructions, step-by-step guides, and other information to assist filers.

Penalties for Non-Compliance

The CTA establishes civil and criminal penalties for individuals who “willfully provide, or attempt to provide, false or fraudulent beneficial ownership information” or who “willfully fail to report complete or updated beneficial ownership information.” Willful failures to report complete or updated beneficial ownership information are punishable by civil penalties of up to $500 per day that each violation continues, and in certain cases criminal penalties of up to $10,000, two years’ imprisonment, or both.