The Corporate Transparency Act and Beneficial Ownership Reporting Requirements

The Corporate Transparency Act and Beneficial Ownership Reporting Requirements – Effective January 1, 2024

By Alexandra F. Vecchio

What is this new law? 

The Corporate Transparency Act was passed in 2021 to prevent terrorism, money laundering, tax evasion, securities fraud, and other similar misconduct. Most significantly, the Act introduces beneficial ownership reporting requirements for new and existing companies.

Set to become effective January 1, 2024, the Act will require companies to file an electronic report with the Financial Crimes Enforcement Network of the Department of the Treasury, also known as FinCEN, with information about the company and its “beneficial owners.” 

Does it apply to me? 

Your company will be required to file a report if it is a corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office under the laws of a state or Indian tribe. Also required to file a report are companies formed under the laws of a foreign country and registered to do business in the United States by filing a document with the secretary of state or similar office under the laws of a state or Indian tribe. 

There are 23 types of companies that are exempt from the reporting requirements, including:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. Investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance provider
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. Large operating company
22. Subsidiary of certain exempt entities
23. Inactive entity

What do I have to do to be in compliance? 

To remain in compliance, companies will be required to file a report on FinCEN’s website detailing the information below about the company, its “beneficial owners,” and – if formed on or after January 1, 2024– its “company applicants.”

In the report, companies will be required to disclose: 

• the company’s legal name and any trade names;
• the current street address of the company’s principal place of business in the U.S.;
• the jurisdiction (state/country) where the company was formed or registered; and 
• the company’s taxpayer identification number. 

For each “beneficial owner” and “company applicant,” each company will also have to disclose: 

• the individual’s full legal name;
• the individual’s date of birth;
• the individual’s current residential or business street address;
• the unique identifying number from the individual’s passport, United States driver’s license, or other government-issued identification document; and
• a photo of the identification document.

It is important to determine who in your company is considered a “beneficial owner.” A “beneficial owner” is an individual who, directly or indirectly, (1) exercises control over the company, or (2) owns or controls 25% or more of the ownership interests in the company. A beneficial owner is typically a senior officer, someone with the authority to appoint or remove officers/directors, an important decision-maker, or any other individual with substantial control over the company.

There are five exceptions to the “beneficial owner” definition, (meaning the following will not have to be reported), including: 

(1) a minor child (although a parent/guardian will have to be reported in the child’s place); 

(2) a nominee, intermediary, custodian, or agent; 

(3) an employee who does not have substantial control over the company; 

(4) an individual whose only interest in the company is a future interest through a right of inheritance; and 

(5) an individual who is a creditor of the entity.

A “company applicant” is the individual who directly filed the document that created or registered the company. If more than one person was involved in the filing, the company applicant will be the individual who is primarily responsible for directing or controlling the filing of the company. Only companies formed on or after January 1, 2024, will be required to report their “company applicants.”

Are there deadlines? 

There are deadlines for filing, which depend on when the company was created:

• If formed before January 1, 2024, the company will be required to file a report with FinCEN before January 1, 2025.
• If formed on or after January 1, 2024, but before January 1, 2025, the company will be required to file a report with FinCEN within 90 days of its formation or registration.
• If formed on or after January 1, 2025, the company will be required to file a report with FinCEN within 30 days of its formation or registration.

Please also note that there is no requirement to re-file annually; however, any changes to the information reported about each beneficial owner will have to be disclosed to FinCEN in a follow-up report within 30 days of such change.

What happens if I do not comply? 

Failure to comply with the reporting requirements outlined above may result in civil penalties of up to $500 a day for each day that the violation continues, and fines of up to $10,000, imprisonment for up to two (2) years, or both.

How can Egan & Golden, LLP help? 

All of the Firm’s corporate clients will have to comply with FinCEN’s reporting requirements unless they fall under an exception specified in the Act. We recommend reaching out to an attorney to help gather the required information and avoid hefty fines for non-compliance.

If you need assistance with filing the report or have any questions, please give us a call at (631) 447-8100. We would be happy to guide you through the process. 

For more information and answers to FAQ’s, visit FinCEN’s website at www.fincen.gov