United States Corporate Transparency Act, New Corporate Reporting Requirement in the United States

Posted Wednesday 3rd April 2024

As of January 1, 2024, a new corporate reporting requirement is in effect in the United States. The US Corporate Transparency Act (“CTA”), a new part of the Anti-Money Laundering Act of 2020, requires “reporting companies” to file beneficial ownership information (“BOI”) reports with the Financial Crimes Enforcement Network (“FinCEN”) of the US Department of Treasury.  BOI reports require the disclosure of personal information about the reporting company’s beneficial owners to help prevent and combat money laundering and other illicit activity in the United States by providing law enforcement and other investigatory bodies information regarding the owners of US reporting companies. While these types of “KYC” requirements are nothing new for many counties within Europe, it is a significant change for the United States.

Reporting Companies and Exemptions

Only “reporting companies” are required to file BOI reports under the CTA.  A reporting company as defined under the CTA includes:

• Domestic Reporting Companies, which include any corporation, limited liability company, limited partnership or similar entity created by filing a document with any US state, territory or Indian tribe; and
• Foreign Reporting Companies, which include any non-US entity that registers to do business with any US state, territory or Indian tribe. Trusts (other than trusts created by a filing, such as statutory or business trusts) are themselves not reporting companies.

There are 23 types of entities that are exempt from the CTA reporting requirements, with most exemptions applying to entities that are already subject to substantial federal or state regulation.

Information Required to be Reported

1. Reporting Company: Each reporting company must provide the company’s legal name, trade name or “doing business as” name, current address, the company’s jurisdiction of formation (or, for a foreign reporting company, the state, territory or tribal jurisdiction where it first registers) and the company’s EIN. Foreign reporting companies must provide a foreign tax identification number if they do not have an EIN.
2. Beneficial Owners: A “beneficial owner” is anyone who, directly or indirectly, “owns” or “controls” at least 25% of the ownership interests (includes but not limited to equity, stock, voting rights, capital or profit interest, convertible instruments, options contract or other mechanism used to establish ownership) in a reporting company and/or exercises “substantial control” over the reporting company. An individual with substantial control is someone who exercises a certain degree of power over a reporting company, regardless of title within the company. This is a broad definition and can include anyone who has authority to appoint or remove officers or directors or has direction or substantial influence over important matters at the reporting company, or holds a senior title (e.g., president, CEO, CFO, or general counsel).
3. Company Applicant: Reporting companies formed or registered to do business in the US on or after January 1, 2024, must identify up to two “company applicants”. The two company applicants include (i) an individual who directly files the document to create or register the reporting company and (ii) the individual who is primarily responsible for directing or controlling such filing (if more than one individual participates in the filing).
4. Each beneficial owner and company applicant must provide for the BOI report the individual’s full legal name, date of birth, current residential address (or business address for the company applicant if in the business of forming entities), and a unique identifying number from a non-expired US passport, driver’s license, or other state, local government or Indian tribe issued identification, and an image of the document from which the unique identifying number was obtained.

Initial Report Due Dates

The CTA has varying due dates;

• Reporting companies formed before January 1, 2024 have until January 1, 2025 to file their initial report with FinCEN.
• Reporting companies formed on January 1, 2024 through December 31, 2024, must file their initial report within 90 calendar days of the company’s formation.
• Reporting companies formed on or after January 1, 2025, must file their initial report within 30 calendar days of the company’s formation.

Changes and Updates

Reporting companies are required to maintain the accuracy of the filed information. BOI reports must be updated within 30 calendar days  of any changes to the reporting company or any beneficial owners,. If a reporting company identifies any errors on BOI reports after they have been filed, a corrected report is required to be filed within 30 calendar days of the reporting company becoming aware, or having reason to know, of the error in the report.

Failure to Comply

Failure to comply with the requirements of the CTA and/or willfully providing false or misleading information on the report may result in civil penalties up to $500 per day (maximum fine of $10,000) and/or criminal penalties including fines up to $10,000 and imprisonment for up to two years in federal prison. Individuals associated with the reporting can be held personally liable as well as the reporting company for false reports.

Final Note

On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs. FinCen is taking the position that, while the CTA is enjoined as to the plaintiffs in the case in the Northern District of Alabama, all others must still comply. Therefore, compliance with the CTA is still advised.

This article was written by Bruce Chiu, Shareholder at Dentons.

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.