Leonard J. Essig, Member

Beginning January 1, 2024, the Corporate Transparency Act (CTA) will require “reporting companies” to file detailed information about themselves and their owners and management with the federal Financial Crimes Enforcement Network (FinCEN). FinCEN estimates that more than 32 million companies will be required to file reports by the end of 2024.

For companies formed before 2024, the reporting deadline is December 31, 2024. However, the deadline for companies formed on or after January 1, 2024 is much sooner, so reporting companies and their advisers should become familiar with the CTA requirements now.

Part I of this Client Alert provides an overview, in question and answer format, of key parts of the CTA. Part II contains recommendations on what actions a business should undertake now.

A much more detailed discussion on who is required to report under the CTA and the information that a company subject to the CTA (“reporting companies”) must disclose, is available here.

PART I: OVERVIEW – THE CORPORATE TRANSPARENCY ACT

What does the Corporate Transparency Act require?

The CTA requires corporations, limited liability companies, and other similar entities (referred to in the CTA as “reporting companies”) to file reports ("BOI reports") with FinCEN containing information about the reporting companies and their beneficial owners. Reporting companies created or registered to do business on or after January 1, 2024 must also provide information about the individuals who filed the document with governmental authorities that created the reporting company or registered it to do business. These reports must be updated or corrected if reported information changes or is incorrect.

When are the reporting deadlines?

Companies created before January 1, 2024 must file an initial report no later than January 1, 2025. Companies created on or after January 1, 2024 and before January 1, 2025 must as a practical matter file an initial report within 90 days of organization. The deadline will be 30 days in most other instances where BOI reporting is triggered (including if a previously exempt company no longer qualifies for an exemption).

Who is exempt from reporting under the CTA?

Large operating entities and entities that are heavily regulated are generally exempt from the CTA. More specifically, the CTA describes, subject to specific requirements and limitations, exemptions for, among others, “large operating companies,” publicly held companies, banks, credit unions, securities brokerages, certain pooled investment vehicles, investment companies, investment advisers, insurance companies, state-licensed insurance producers, accounting firms, public utilities, certain tax-exempt entities, and certain “inactive entities.” For most “ordinary,” non-financial services companies, the large operating company exemption will be the only potentially applicable exemption.

When is a company a “large operating company”?

A “large operating company” is any entity that: (1) employs more than 20 full time employees in the United States; (2) has an operating presence at a physical office in the U.S. that is physically distinct from the place of business of any other unaffiliated entity; and (3) filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales from sources inside the United States. The employee headcount must be calculated on a company-by-company basis - FinCEN does not permit an entity to include employees of subsidiaries or other affiliates.

What must a BOI report contain?

A reporting company’s BOI report must include detailed information about the company itself, the company’s “beneficial owners,” and, if the company was formed after January 1, 2024, the company’s “company applicants.”

Who is a “beneficial owner” under the CTA?

“Beneficial owner” means any individual who, directly or indirectly, either exercises “substantial control” over the company or owns or controls at least 25% of the ownership interests of such reporting company. Persons with substantial control include the company’s senior officers (president, CEO, CFO, COO, general counsel, or other officers with similar functions), persons who can appoint or remove management, and persons who have substantial influence over important company decisions. “Ownership interests” under the CTA is defined very broadly and includes corporate stock, LLC membership, limited partnership, and other equity interests (including profits interests), and options, warrants, and convertible instruments.

What information must the BOI report contain about the reporting company?

A reporting company must report the following information:

• full legal name;
• any trade names or “doing business as” names (regardless of whether they are filed or registered with a governmental authority);
• a complete current address (principal place of business if located in the United States, otherwise the primary business location in the United States);
• the jurisdiction of formation; and
• the company’s taxpayer identification number (including employer identification number).

What information about beneficial owners or company applicants must the report include?

A reporting company must report the following “beneficial ownership information” (or BOI) with respect to each individual beneficial owner and company applicant:

• full legal name;
• date of birth;
• complete current address;
• A unique identifying number and the issuing jurisdiction from one of the following documents:
  • A non-expired passport issued by the United States government;
  • A non-expired identification document issued by a State, local government, or Indian tribe;
  • A non-expired driver’s license issued by a State; or
  • A non-expired passport issued by a foreign government, if the individual does not possess any of the documents described above; and
• An image of the document from which the unique identifying number was obtained.

In lieu of beneficial ownership information, the report may contain a “FinCEN identifier,” which is a unique identification number that FinCEN will issue to an individual upon application or to a reporting company that has filed an initial BOI report.

When are additional reports required?

A reporting company must monitor its previously reported information for changes and timely report those changes (and also correct inaccuracies in previously reported information). There is no annual or periodic reporting requirement under the CTA.

PART II: PREPARING FOR CTA - WHAT SHOULD BUSINESSES DO NOW?

To prepare to meet their reporting obligations when the CTA becomes effective, virtually all companies should:

• determine their reporting company status
  • include subsidiaries and any portfolio companies or fund investments
• identify their beneficial owners
  • review ownership records for completeness and accuracy and
  • review existing governance documents (e.g., bylaws, operating agreements, etc.)
• establish compliance procedures and systems
  • to securely collect and store the beneficial ownership information and to monitor for and report changes
• update governance documents (e.g., operating agreements, shareholder agreements, and bylaws) to include express obligations on beneficial owners to provide information necessary to submit and update BOI.

FinCEN has clearly stated that BOI reporting is the responsibility of the reporting company – not its beneficial owners and that the reporting company must ensure the accuracy of the BOI reported by it.

A Final Word of Caution...

Companies should be on the lookout for mailings and emails from senders with which the recipient is unfamiliar that offer assistance with complying with the CTA. As with other governmental programs, we expect to see scammers attempt to obtain personal information through fraudulent schemes designed to look like legitimate services relating to the CTA.

Please call us with any questions on the CTA. You can reach our CTA Team at [email protected] or contact an attorney listed under "Associated People" above.