Key takeaways

• Starting Jan. 1, 2024, the Corporate Transparency Act (CTA) will go into effect.
• All entities formed or registered to do business in the United States will need to either (i) confirm they qualify for an exemption from the CTA’s reporting requirements or (ii) timely submit a beneficial ownership information (BOI) report to the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN).
• This alert is intended only to provide a high-level overview of the CTA. You may click here to download a one-page PDF version of this summary. For additional details, please refer to our separate alerts on the adoption of the CTA and the final rule establishing the BOI reporting requirements.

What is the Corporate Transparency Act?

The CTA will require all “reporting companies” to disclose certain information on their beneficial owners to FinCEN.

What is the timeline for compliance for reporting companies that are subject to the CTA?

Existing entities formed prior to Jan. 1, 2024, will have one year from that date to file their initial BOI report.

New entities formed on or after Jan. 1, 2024, must file their initial BOI report within 30 days after their formation. But on Sept. 28, 2023, FinCEN proposed extending this deadline to 90 days for entities formed in calendar year 2024.

After the initial report, there is no annual or quarterly filing requirement. However, reporting companies must file an amendment within 30 days after any change to their reported information.

What is considered a “reporting company” under the CTA?

The term includes all entities—unless an exemption applies—that are formed or registered to do business in the United States by the filing of a document with a secretary of state or similar office (e.g., corporations, LLCs, LLPs). If an entity is not created by such a state filing (e.g., most trusts), the entity is not subject to the CTA.

What types of entities are exempt from the CTA’s reporting requirements?

There are 23 listed exemptions. These include, among others:

• “Large operating companies,” which are entities that (i) have more than 20 full-time U.S. employees (not counting employees of affiliated entities), (ii) reported more than $5 million of revenue from U.S. sources on a consolidated basis to the IRS for the previous year and (iii) have an operating presence at a physical location in the United States.
• Nonprofit entities, political organizations and certain tax-exempt trusts.
• Public companies, insurance companies, banks, registered investment companies, registered investment advisers and certain other entities already subject to regulatory oversight.
• Subsidiaries that are wholly owned, directly or indirectly, by the foregoing exempt entities.

If the entity is exempt, no further action is required.

What are the reporting requirements for nonexempt entities?

Each reporting company will be required to submit BOI reports to FinCEN. The exact submission process has not been finalized, but the reports are expected to be filed electronically through an online interface (similar to EDGAR).

Each BOI report must disclose certain information about the reporting company (name, address, taxpayer identification number) and its “beneficial owners” and “applicants” (full legal name, date of birth, address and passport or driver’s license number, with a photocopy of such document).

Who are considered the “beneficial owners” and “applicants” of an entity?

Beneficial owners include any individual who, directly or indirectly, (i) exercises substantial control over the entity (e.g., any senior officer) or (ii) owns or controls 25% or more of the ownership interests.

Applicants include a maximum of two individuals: (i) the person who directly files the formation or registration document of the reporting company and (ii) the person who was primarily responsible for directing such filing. However, entities formed prior to Jan. 1, 2024, will not need to provide BOI reports for their applicants.

Will the BOI reports be publicly available? How will they be used?

No, the information will not be publicly available. Generally, it will be disclosed only (i) to federal and state law enforcement agencies in specified circumstances and (ii) with the reporting company’s consent, to financial institutions in connection with their know-your-customer (KYC) obligations.

Are there any penalties for noncompliance?

Yes. The CTA provides for both civil and criminal penalties (up to $10,000 and two years’ imprisonment) for willfully providing false information, failing to provide complete information or failing to update information.

An individual may be held liable under the CTA if they caused the failure or were a senior officer at the time of the failure.

Do any states have a similar corporate transparency law of their own?

To date, New York is the only state to pass a similar transparency act. If signed into law by the governor, the law would require only LLCs formed or registered to do business in New York to submit the same BOI report required by the CTA. However, the state will make the name and address of each beneficial owner publicly available in a searchable database. California has also proposed, but has not yet passed, its own corporate transparency act.

[View source.]