Under the new law, businesses will be required to report the name, date of birth, current address, and unique identification number of the individuals who own, directly or indirectly, at least 25% of the company or who otherwise control the company. This applies to US corporations and LLCs alike, and companies formed in other countries that are registered to do business in the U.S.
The reporting requirements will not apply to publicly traded companies, certain regulated companies and companies that have already provided this information to a government agency. Tax exempt entities will be excluded as well. And operating companies (those with 20 or more full time employees; at least $5,000,000 in sales revenue; and an operating presence at an actual physical location in the U.S.) and their subsidiaries will also be excluded. Also, a company that has been in existence for over one year; not engaged in active business; not owned, directly or indirectly, by a foreign person; has not, in the preceding 12-month period, experienced a change in ownership or sent or received funds greater than $1,000; and does not otherwise hold any asset, including an ownership interest in any corporation or LLC, will be excluded from the reporting requirements as well.
As a result of the new law, it will not be possible to keep the identities of the individuals who own, and control US business entities totally private any longer. Unless otherwise exempt, all businesses will be subject to the new beneficial ownership reporting requirements including, the many holding companies and anonymous shell companies that exist or may be formed in the future for corporate planning purposes.
The information provided to the U.S. government under the CTA will be kept confidential and can only be used for law enforcement, national security, or intelligence purposes. This ownership information is not subject to disclosure under the Freedom of Information Act and should not be readily apparent to anyone else.
Reporting will not begin until the U.S. Department of Treasury has adopted regulations under the CTA, which are mandated by January 1, 2022. Entities formed after the regulations are effective are required to file the information at the time of formation. Entities formed before the date the regulations are effective must report this information no later than two years after the effective date of the regulations. Any change in beneficial ownership is required to be updated within one year of the change. There will be substantial monetary penalties and fines for non-compliance, including civil penalties of up to $500 per day the violation continues, and criminal penalties up to $10,000 and/or imprisonment for up to two years.
The CTA is going to have significant implications for foreign and domestic US businesses. While we wait for further guidance on the scope and applicability of the reporting requirements from the implementing regulations, businesses should understand now, that unless exempt, new entities formed after the time the regulations take effect, must disclose this information to the U.S. government, at the time the new entity is formed. And that entities existing at the time the regulations take effect, will be required to disclose this information within two years.
Are you prepared for these changes?