The Corporate Transparency Act (CTA) will establish uniform reporting requirements concerning beneficial ownership information for certain types of corporations, limited liability companies (LLCs), and other entities created in or registered to do business in the United States. The CTA authorizes the Financial Crimes Enforcement Network (FinCEN) to collect that information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls. The CTA and its implementing regulations will provide essential information to law enforcement, national security agencies, and others to help prevent criminals, terrorists, and corrupt oligarchs from hiding illicit money or other property in the United States. The CTA is part of the Anti-Money Laundering Act of 2020.
Timing (When will reporting become mandatory?)
The rule becomes effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information. FinCEN is committed to implementing these statutory obligations in a robust manner while minimizing burdens on reporting companies.
Who are “reporting companies”? (What types of companies will be subject to the CTA?)
- The rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, LLC, or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.
- FinCEN expects that these definitions mean that reporting companies will include (subject to the applicability of specific exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office.
Who are considered “Beneficial Owners”?
- Under the rule, a beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines the terms “substantial control” and “ownership interest.” The rule exempts five types of individuals from the definition of “beneficial owner: 1) minor children, 2) individuals acting as nominees, intermediaries, custodians, or agents, 3) employees acting solely as employees and not as senior officers, 4) individuals whose only interest in a reporting company is a future interest through a right of inheritance, and 5) creditors of a reporting company.
Who are Company Applicants?
- The rule defines a company applicant to be only two persons:
- the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
- the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
For more information on what this upcoming legislation could mean for your business, contact the qualified attorneys at Rock, Fusco & Connelly.