A federal law effective in January will require new reporting tasks for many family offices and other entities, including limited liability companies (LLCs), limited partnerships (LPs) and S and C corporations.

Who has to Report?

Starting in 2024, all “reporting companies,” meaning any entity formed by filing with a secretary of state or similar office, will be required to file a “beneficial ownership report” with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) detailing certain “beneficial owners” who control or own interests in the entities. These “beneficial owners” may include trustees and/or beneficiaries of trusts that hold interests in these entities.

Examples of entities that are likely to be considered reporting companies and required to file a report to FinCEN could include:

• Family offices.
• Family LPs, LLPs or LLCs.
• LLCs created to hold real estate, art or an investment portfolio.
• LLCs that hold title to yachts or airplanes.
• S and C corporations and LLCs that hold small and medium-sized family businesses.
• Unregulated private trust companies.

Because trusts are not created through a filing with a secretary of state or similar state office, trusts are not reporting companies. However, entities held by trusts may be reporting companies, which would require family offices to analyze beneficial ownership and decision-making within the trust to determine which individuals, if any, must be reported as “beneficial owners” of an entity in which the trust holds stock or other equity.

The law provides exceptions which exempt certain entities from reporting, including:

• Large operating companies, defined as having more than 20 full time employees in the U.S., operations at a physical location in the U.S. and $5 million or more in reported revenues. Employees must be directly employed by the large operating company (not an affiliate or employee leasing company) to qualify the company for this exemption.
• Entities subject to substantial government regulation, such as publicly traded companies, registered investment advisers, venture capital fund advisers, broker-dealers, banks and other financial institutions, regulated private trust companies and insurance companies.
• Certain tax-exempt entities, such as charitiesand foundations, as well as certain entities assisting a tax-exempt entity.
• Certain subsidiaries of entities that are exempt from reporting.
• Inactive entities, meaning those that are not engaged in active business, do not hold assets or ownership interests in any other entity, have not received or sent more than $1,000 in funds in the previous 12 months, are not owned by a “foreign person” and have not had a change in ownership in the previous 12 months.

What has to be Reported?

Reporting companies that do not fall under these exemptions will be required to file reports containing information on the reporting company, all “beneficial owners” of the company and the company applicants involved in the formation of the company. The reporting company must provide:

1. Reporting company information:
   • Full legal name, including trade names and d/b/a names.
   • Business street address which cannot be a P.O. Box or the address of a registered agent.
   • State or foreign jurisdiction of formation.
   • Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN).
   • An image of an identifying document from the formation jurisdiction, such as the articles of incorporation.
2. All beneficial owner information (BOI) and company applicant information:
   • Full legal name.
   • Date of birth.
   • Current residential address for beneficial owner. A business address may be used only for a company applicant, such as an attorney, who registered the company in the course of their business.
   • A unique identifying number from an acceptable identification document, such as a driver’s license, passport or other government-issued identification document.
   • An image of the identification document.

A “beneficial owner” is any individual who, directly or indirectly: 1) exercises substantial control over the reporting company (for example, through service as a senior executive such as CEO, CFO, or general counsel, or through other authority to make substantial decisions on behalf of the entity), 2) owns or controls 25% or more of the ownership interests of the reporting company or 3) owns or controls a majority of the voting equity in the reporting company. “Substantial control” and “ownership interests” are broad terms encompassing a wide variety of individuals, not just those with equity or vested equity in the entity. Where a trust holds a reportable ownership interest in a reporting company, beneficial owners of the reporting company may also include:

• The trustee and anyone else with authority to vote or dispose of trust assets.
• A beneficiary who 1) is the sole permissible recipient of income or principal or 2) has the right to demand a distribution of or withdraw substantially all trust assets.
• A grantor/settlor who has the right to revoke or withdraw assets.

A “company applicant” is any individual who 1) files an application to form an entity under the laws of a U.S. state or 2) is primarily responsible for directing or controlling the filing of such documents by another person. Only entities formed after January 1, 2024, must report information on company applicants.

Who Can See the Information I Report?

FinCEN states that the information in the reports will be stored in a non-public database subject to strict confidentiality and rigorous security. These reports will be accessible only to federal agencies and state, local and tribal officials for authorized activity related to national security, intelligence, law enforcement and tax administration. In certain circumstances, such as compliance with due diligence requirements, financial institutions will be allowed to access this information with the consent of the reporting company, but this would also provide access to regulators in the course of their supervision of the institution.

How are Reports Filed?

Reporting sites are not yet available, but starting in 2024, the FinCEN website will have a section to create secure, online filings. No paper filings will be accepted. No fees are required to file a report.

When Must We Report?

Currently, the CTA states that existing entities have until December 31, 2024, to file their initial reports. However, the U.S. House of Representatives has recently passed a bill that proposes to delay this date until December 31, 2025. It is unclear if the U.S. Senate will move this bill forward to change the deadline for the initial filing – we will keep you posted on any changes to reporting dates.

Entities formed in 2024 will have 90 days after formation to file the initial report, but starting on January 1, 2025, new entities will only have 30 days to file the initial report.

Once the initial report is filed, no annual reporting requirement exists. However, information on file with FinCEN must always be current, so any change for either the reporting company information or BOI (such as an address change or name change of the entity or an owner, transfer of stock or other equity interests, grant of options or other securities or instruments convertible into equity, trustee change or death of an owner) requires the reporting company to file an updated report with FinCEN within 30 days of the change. This updated report would need to include an image of any new identifying documents, such as a driver’s license, if the address or name changed on those documents. Reporting companies will need to have a process in place for quick discovery and reporting of updated information to ensure continued compliance.

How Can We Streamline Reporting?

Once the CTA becomes effective, FinCEN will allow individuals and entities to apply for a unique FinCEN identifier number. If a beneficial owner holds a FinCEN identifier number, the reporting company may simply report the beneficial owner’s name and FinCEN identifier number (rather than the individual’s address, photo ID number and a copy of that photo ID) on its CTA report. If any information about that beneficial owner changes in the future (e.g., a change in residential address), the individual would update their information with FinCEN within 30 days. The reporting company would not have a duty to update its previously-filed BOI, because no information in the previously-filed BOI would be inaccurate. It is likely that family offices will find FinCEN identifier numbers helpful both to reduce the number of fields that must be completed in each BOI filed under the CTA and to reduce the burden associated with each reporting company’s obligation to timely update previously-filed BOI reports.

What are the Penalties for Reporting Violations?

Violations of the CTA, such as failing to report in a timely manner, providing false information or failing to update previously reported information, are steep. Civil penalties can be up to $500 PER DAY that the violation continues, and criminal penalties can include a fine of up to $10,000 per day and/or imprisonment of up to two years. Senior officers of the reporting company may be held accountable for violations.

What Should I do Now?

Website links and reporting forms are not yet available, but we encourage existing family offices and other reporting companies to start preparing early due to the significant amount of time many will need to complete this task. To dos would include:

In December 2023:

• If you were planning next year to create an LLC or other entity that will be a reporting company, consider creating it before the end of 2023 to buy yourself more time to report.
• If you have old entities, prepare to dissolve them in 2024.

During 2024:

• Determine if you will be a reporting company and if any other family entities will also be one.
• Determine which individuals will be considered beneficial owners for each of the family’s reporting companies.
• Determine which individuals are company applicants for entities formed after January 1, 2024.
• Create a process and storage location for collecting, storing and updating the required information and document scans for each reporting company and beneficial owner.
• Begin collecting the required information.
• Consider updating corporate and LLC documents, such as buy-sell agreements, operating agreements and shareholder agreements, to require all beneficial owners to provide the reporting company with the required information and updates in a timely manner and adding consequences for failure to comply.
• If desired, obtain FinCEN numbers after January 1, 2024, for relevant reporting companies or beneficial owners whose information will need to be reported and updated in relation to multiple entities.