If you own an interest of 25% or more in any business entity or have any substantial control over any business entity (including as a manager or senior officer), or if you are responsible for legal compliance for one or more business entities, you and your business will be impacted by a new federal law, the Corporate Transparency Act (CTA), that takes effect on January 1, 2024.

In order to establish a sweeping and perpetual dragnet to aid in the policing of domestic money laundering, the U.S. Congress passed the CTA, which directs the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national registry of beneficial owners of every legal entity formed or registered in the United States (with limited exceptions); these entities are referred to as “reporting companies.” The CTA requires reporting companies to make initial and updated disclosures of information relating to the individuals who beneficially own and control the reporting companies. Willful failure to abide by the disclosure requirements of the CTA could result in civil and criminal penalties, including fines of up to $10,000, imprisonment for up to two years, or both.

The following entities will likely be reporting companies and subject to ongoing disclosure requirements:

• holding companies (unless registered or reporting under the Exchange Act),
• operating companies with 20 or fewer employees or $5M or less in gross receipts,
• joint ventures and subsidiaries that are not wholly owned,
• exempt private fund advisers (other than venture capital fund advisers) and their pooled investment vehicles,
• real estate investment vehicles and special purpose vehicles,
• and other business entities. 

Even if a business entity in your organization is not a reporting company under the CTA because it qualifies for an exemption, you should still be familiar with the CTA’s requirements in case any business entity in your organization at some point no longer qualifies for an exemption and to ensure compliance with the CTA whenever you form a business entity.

We created a Corporate Transparency Act Guide to help you determine whether an entity in your organization is a reporting company and subject to the disclosure requirements of the CTA and the information it will need to provide to FinCEN if it is covered by the CTA; however, this guide is not comprehensive, and it is not intended to be, and should not be interpreted as, individual legal advice. This guide is current as of the date indicated within and may not reflect subsequent updates and guidance from FinCEN or other authorities. An individual’s or entity’s reporting obligations under the CTA will depend on the facts specific to that individual or entity. Every principal, manager, and senior officer of any business that has any entity organized or registered to do business in the United States and its territories should become familiar with the requirements of the CTA and create an operational system to ensure timely compliance. 

Initial reports for reporting companies formed or registered prior to January 1, 2024, are due by January 1, 2025. Initial reports for reporting companies formed or registered on or after January 1, 2024, are due within 30 days of confirmation of formation or registration, however, FinCEN has proposed expanding this window to 90 days for companies formed on or after January 1, 2024, and before January 1, 2025 (that amendment has not yet been adopted as of the date of this alert). Reports will be made directly to FinCEN via an online portal, which is not operational at this time and may not be accessed before January 1, 2024. We will provide an update once FinCEN begins accepting reports and if there are any material changes to the regulations.