The Corporate Transparency Act
By: Conrad S. Herman, Associate
The Corporate Transparency Act (the “CTA”) is a new federal law that became effective on January 1, 2024, requiring most private companies to register with the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) before the end of 2024. Specifically, the CTA requires all private entities that meet the CTA criteria of a “reporting company” (“Reporting Company”) to register with FinCEN disclosing basic information regarding the company and the individuals that directly and indirectly meet certain ownership levels or otherwise exercise control over the Reporting Company. A Reporting Company will report the required information by filing a Beneficial Ownership Information Report (“BOIR”) through the FinCEN website.
The BOIR must be filed by the end of 2024 for Reporting Companies created prior to 2024, within 90 days of formation for Reporting Companies formed in 2024, and beginning in 2025, within 30 days of formation. Changes to information reported to FinCEN must be updated by the Reporting Company within 30 days of the change. There are significant civil, and potentially criminal, penalties for failing to properly file and update with FinCEN.
The BOIR requires Reporting Companies identify their direct and indirect individual beneficial owners (typically individuals with direct and indirect ownership of 25% or more) and individuals with substantial control, including senior officers (e.g., President, CEO, CFO, COO, general counsel), most LLC managers and any other individual who has direct or indirect substantial control over the entity. There are complex rules regarding who constitutes a “beneficial owner” or is otherwise required to be identified. An analysis will need to be conducted on a case-by-case basis for each Reporting Company taking into consideration its governing documents and capital and management structure.
Beneficial Owners and other individuals a Reporting Company indicates in the BOIR must provide to FinCEN an image of a valid government issued ID (e.g. passport, driver’s license, etc.) along with their respective residential address and date of birth. Individuals may independently register with FinCEN and obtain a unique FinCEN ID number which can be used by Reporting Companies for its BOIR. For individuals involved in multiple businesses, this is advisable. Individuals obtaining an FinCEN ID will also be responsible for timely updating their information as it changes (e.g., new address, updated government driver’s license/passport, etc.).
There are 23 relatively narrow exceptions for private entities that are exempt as Reporting Companies and will not be required to file a BOIR with FinCEN while the exemption remains applicable. These include public companies registered with the SEC and their wholly-owned subsidiaries, entities that directly employ 20 or more full-time employees and have reported $5 million in gross revenue for the previous year and their wholly-owned subsidiaries, tax exempt 501(c) entities, banks/bank holding companies and various other federally regulated financial or depository institutions. Availability of an exemption for a private entity is a detailed, fact-based analysis.
Currently, access to the information provided to FinCEN through the BOIR is strictly for law enforcement purposes however, there are indications in the CTA that financial institutions may be able to request information from the database for limited purposes as well.
More details and information regarding the CTA can be found at the links below:
Disclaimer:The information provided above is a summary in nature and the CTA and its regulations are detailed and complex. Consequently, this post is for general informational purposes only and should not be viewed as legal advice for any particular situation.