As we highlighted in the Family Office Newsletter’s pages in June, the Corporate Transparency Act (CTA) is slated to go into effect on January 1, 2024. Under the law, many newly formed and existing entities organized under state law, as well as entities formed under non-US law that register to do business in the United States, will be required to identify their “beneficial owners” and provide certain other information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury.

Reporting Companies

The scope of entities that are subject to reporting under the CTA – called “reporting companies” – is broad, including by default all types of entities, except those such as trusts, sole proprietorships, and general partnerships that are formed without filing documents with a governmental agency. Several categories of entities are exempt from CTA reporting, including among others certain tax-exempt organizations, certain charitable trusts and split-interest trusts, highly regulated entities such as banks (and certain regulated trust companies), large operating companies, and subsidiaries of entities exempt from CTA reporting.

Beneficial Owners & Company Applicants

Each reporting company is required to disclose its beneficial owners, who are individuals who, directly or indirectly, either exercise substantial control over the entity or own or control at least 25% of the entity’s ownership interest. Regulations issued under the CTA explain these tests in greater detail (and we delved into them at greater length in our June article). But it is worth noting, in particular with respect to trusts, that beneficial owners of a company could include a trust’s (A) trustee and other individuals who have authority to dispose of trust assets, (B) beneficiary who is the sole beneficial of the trust’s income and principal or has the right to demand a distribution or withdraw the trust’s assets, and (C) grantor or settlor who retains the right to revoke a trust or withdraw its assets.

In addition to beneficial owners, a reporting company formed on or after January 1, 2024, needs to report the individuals who directly filed the document creating it (or, in the case of a foreign company, first registering it in the United States) and who were primarily responsible for directing or controlling the filing. In a law firm setting, this could include both the attorney primarily responsible for overseeing the filing of incorporation documents and the paralegal who directly files the documents.

Time to Comply

Reporting companies in existence before January 1, 2024, will be required to file their initial report with FinCEN no later than January 1, 2025. A reporting company created on or after January 1, 2024, generally will need to file its initial report within 30 days of its creation or registration. And a previously registered company will be required to update its registration within 30 days of a change in its beneficial ownership or other information reported to FinCEN.

Note, however, that pursuant to a proposed rule issued by FinCEN in late September (available here), a company created or registered to do business during 2024 would, if the rule is finalized, have 90 days to file its initial report with FinCEN, instead of the regular 30-day period. A company formed on or after January 1, 2025, would still be subject to the general 30-day reporting timeframe.

In addition, although the prospects for its passage are uncertain, proposed legislation with bipartisan support would delay the implementation of certain CTA deadlines. The bill also would prohibit FinCEN from allowing a reporting company to avoid submitting beneficial ownership information by asserting an inability to obtain that information.

Further FinCEN Guidance on the CTA

As FinCEN is working to finalize the CTA reporting systems in time for the January 1, 2024, go-live date, it also has been more active in issuing guidance in digestible formats for the public.

For example, in September 2023, FinCEN released a Small Entity Compliance Guide (available in several languages here), which summarizes in considerable detail the relevant CTA rules, including what constitutes a reporting company, the exemptions from CTA reporting, who are the beneficial owners of such a company, what information needs to be reported, and so forth.

To supplement the Small Entity Compliance Guide, FinCEN also has been updating periodically its list of frequently asked questions on the CTA (available here). Although these FAQs generally distill guidance that is set forth in the Guide, they also contain certain notable items not currently present in the Guide, particularly with respect to FinCEN identifiers. Thus, the FAQs note that FinCEN is developing guidance on the use of FinCEN identifiers by reporting companies (see FAQ #M.2.) and is assessing options to allow individuals to deactivate FinCEN identifiers so that they do not need to update their underlying personal information on an ongoing basis (see FAQ #M.6.). The FAQs also observe that reporting companies may use third-party service providers to submit their required reports to FinCEN, with those providers being able to submit reports either through FinCEN’s electronic filing system or an Application Programming Interface, the technical specifications for which are expected to be made available at a later date (see FAQ #N.1.).

[View source.]