Corporate Transparency Act: A Detailed Discussion

Beginning January 1, 2024, the federal Corporate Transparency Act (CTA) will require “reporting companies” to report personal information (“beneficial ownership information” or BOI) about their owners and management to the federal Financial Crimes Enforcement Network (FinCEN). Although there are multiple exemptions from the reporting requirements (specifically, 23, mostly for larger operating companies or companies subject to extensive federal or state oversight), FinCEN estimates that more than 32 million companies will be required to file reports by the end of 2024. Compliance with the CTA will require a detailed reporting of each reporting company’s structure, ownership and management.

Moreover, reporting companies must monitor the information regarding the companies themselves and their owners and management and timely update that information with FinCEN when it becomes inaccurate. Willful failure to comply with reporting obligations can result in severe penalties.

To prepare to meet their reporting obligations when the CTA becomes effective in 2024, virtually all companies should (1) determine if they are reporting companies, and if they are reporting companies, (2) identify their beneficial owners, (3) develop systems and procedures for gathering, maintaining, and monitoring beneficial ownership information (and requiring beneficial owners to provide the same) and (4) gather beneficial ownership information from their beneficial owners and, if applicable, company applicants. Each of these elements is discussed in more detail below.

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 summary provides an overview, in question and answer format, of the CTA. Part II contains recommendations on what actions a business should undertake now.

PART I: OVERVIEW – THE CORPORATE TRANSPARENCY ACT

What does the Corporate Transparency Act require?

The CTA requires certain 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 such 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 creation or registration document. These reports must be updated or corrected if reported information changes or is incorrect.

What is the purpose of the Corporate Transparency Act?

The CTA is intended to combat terrorism, money laundering, and other misconduct.

Who will have access to BOI reports?

Information required to be reported under the CTA will be made available to federal, state, local, and tribal officials, as well as certain foreign officials who submit a request through a federal government agency, for authorized national security, intelligence, and law enforcement purposes. Financial institutions will also have access to beneficial ownership information in certain circumstances, but only with the consent of the reporting company.

Who must report under the CTA?

BOI Reports under the CTA must be filed by reporting companies. The term “reporting company” includes, in the absence of an exemption, any domestic entity that is a corporation, a limited liability company, or other entity created by the filing of a document with a secretary of state or any similar office under state or tribal law. Certain foreign entities will also be reporting companies if they register to do business in a state by filing with a state or tribal office.

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 file an initial report within 90 days of receipt of actual notice of acceptance or public notice of creation (this could mean appearing in online database).

The deadline will be 30 days in most other instances where reporting under the CTA is triggered (including if a previously exempt company no longer qualifies for an exemption). Companies created on or after January 1, 2025 must file an initial report within 30 days of receipt of actual notice of acceptance or public notice of creation.

Who is exempt from reporting beneficial ownership information?

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 its affiliates, such as subsidiaries. A result of the employee count rule is that a top-tier or parent holding company with no employees may be a reporting company while its operating subsidiary or subsidiaries are exempt.

Unlike the employee headcount rules, an entity may utilize affiliate information for the gross receipts/sales test if the entity is part of an affiliated group of corporations as defined in the Internal Revenue Code (specifically, 26 U.S.C. § 1504) that filed a consolidated return.

The large operating company exemption is not available to new companies that have yet to file a tax return (the tax return is the only permitted way to demonstrate gross receipts or sales above $5,000,000).

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?

The term “beneficial owner,” with respect to a reporting company, means any individual who, directly or indirectly, either (1) either exercises “substantial control” over such reporting company, whether as a senior officer or otherwise, or (2) owns or controls at least 25% of the “ownership interests” of such reporting company.

Who is a “company applicant” under the CTA?

A “company applicant” is (1) the individual who directly files the document that creates the domestic reporting company or files the document that first registers a foreign reporting company; and (2) the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.

A reporting company’s legal counsel or other advisers or service providers may be a company applicant if they meet this criteria. Reporting companies that existed prior to January 1, 2024 need not identify or report a company applicant.

What reporting company information must be included in a BOI report?

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 street address (principal place of business if located in the United States, otherwise the primary business location in the United States; the address may not be a post office box);
  • the state or tribal jurisdiction of formation;
  • for a foreign reporting company only, state of tribal jurisdiction of first registration; and
  • Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN));
    • If a foreign reporting company has not been issued a TIN, report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

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

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

  • full legal name;
  • date of birth;
  • complete current address
    • In the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business; or
    • In any other case, the individual’s residential street address;
  • A unique identifying number and the issuing jurisdiction from one of the following documents:
    • A non-expired passport issued to the individual by the United States government;
    • A non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual;
    • A non-expired driver’s license issued to the individual by a State; or
    • A non-expired passport issued by a foreign government to the individual, 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.

Reporting companies are not required to report the reason (i.e., substantial control or ownership interests) for identifying an individual as a beneficial owner.

In lieu of BOI for a beneficial owner, the BOI report may contain a “FinCEN identifier for the the beneficial owner, discussed in more detail below.

What is “substantial control”?

An individual “exercises substantial control” over a reporting company if the individual:

  • Serves as a “senior officer” of the reporting company;
  • Has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body);
  • Directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:
    • Business, such as:
      • the nature, scope, and attributes of the business of the reporting company;
      • the selection or termination of business lines or ventures, or geographic focus, of the reporting company;
      • the entry into or termination, or the fulfillment or non-fulfillment, of significant contracts;
    • Finances, such as:
      • the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
      • major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
      • compensation schemes and incentive programs for senior officers;
    • Structure, such as:
      • the reorganization, dissolution, or merger of the reporting company;
      • amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures; or
  • Has any other form of substantial control over the reporting company.

A creditor is not deemed to exercise substantial control by virtue of requiring a debtor to agree to negative covenants to secure or enhance likelihood of debt repayment.

Who is a senior officer of a reporting company?

A “senior officer” is any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function.

How can an individual exercise substantial control?

An individual may exercise substantial control over a reporting company through:

  • board representation;
  • appointment as a manager of a limited liability company;
  • ownership or control of a majority of the voting power or voting rights of the reporting company;
  • rights associated with any financing arrangement or interest in a company;
  • control over one or more intermediary entities that separately or collectively exercise substantial control over a reporting company;
  • arrangements or financial or business relationships, whether formal or informal, with other individuals or entities acting as nominees; or
  • any other contract, arrangement, understanding, relationship, or otherwise.

Substantial control may be exercised directly or indirectly, including as a trustee of a trust or similar arrangement.

Members of a board of directors (or similar governing body) are not automatically beneficial owners by virtue of being a director. FinCEN has clarified in its Beneficial Ownership Information Reporting Frequently Asked Questions that whether a director is deemed a beneficial owner must be considered on a director-by-director basis based on whether the director in question exercises substantial control or owns or controls 25% of the ownership interests of the reporting company. The foregoing should also apply to managers of limited liability companies.

There is no limit on the number of beneficial owners that a reporting company may have.

What are ownership interests under the CTA?

The definition of “ownership interests” under the CTA is very broad, and includes, among other things:

  • stock and other equity interests;
  • transferable shares of, or voting trust certificates or certificates of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust;
  • any capital or profit interest in an entity, including membership interests in a limited liability company;
  • convertible instruments;
  • warrants;
  • subscription rights;
  • any put, call, straddle, or other option or privilege of buying or selling any of the above items without being bound to do so, except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; and
  • as stated in the CTA, “any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.”

How is ownership interest calculated?

The total ownership interests that an individual owns or controls must be calculated as a percentage of the total outstanding ownership interests of the reporting company. An individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise, including:

  • Joint ownership with one or more other persons of an undivided interest in such ownership interest;
  • Ownership through a nominee, intermediary, custodian, or agent;
  • With regard to a trust or similar arrangement:
    • As a trustee of the trust or other individual (if any) with the authority to dispose of trust assets;
    • As a beneficiary who:
      • is the sole permissible recipient of income and principal from the trust; or
      • has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or
    • As a trust grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust; or
  • Through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.

Capital or Profit Interests. For reporting companies that issue capital or profit interests (including entities treated as partnerships for federal income tax purposes), the individual’s ownership interests are the individual’s capital and profit interests in the entity (with any options or similar interests of that individual (and only of that individual) shall be treated as exercised), calculated as a percentage of the total outstanding capital and profit interests of the entity.

Stock. For reporting companies that are corporations, entities treated as corporations for federal income tax purposes, and other reporting companies that issue shares of stock, the applicable percentage is the greater of:

  • the total combined voting power of all classes of ownership interests of the individual as a percentage of total outstanding voting power of all classes of ownership interests entitled to vote; and
  • the total combined value of the ownership interests of the individual as a percentage of the total outstanding value of all classes of ownership interests.

For each test above, any options or similar interests of the individual in question (and only of that individual) must be treated as being exercised.

The CTA rules do not address situations where voting rights are limited to certain events or circumstances.

If the facts and circumstances do not permit the calculations described above to be performed with reasonable certainty (e.g., for an early-stage company), any individual who owns or controls 25% or more of any class or type of ownership interest of a reporting company shall be deemed to own or control 25% or more of the ownership interests of the reporting company.

Are there any exemptions from being treated as a beneficial owner?

FinCEN’s rules under the CTA exempt, subject to certain conditions, the following individuals from being treated as beneficial owners:

  • minor children, but only if the reporting company reports beneficial ownership information on a parent or legal guardian;
  • nominees, intermediaries, custodians and agents;
  • an individual acting solely as an employee (but not a senior officer) of a reporting company and whose control over or economic benefits from such entity is derived solely from the employment status of that individual;
  • an individual whose only interest in a reporting company is a future interest through a right of inheritance; and
  • creditors, as long as the only reason the creditor would be a beneficial owner is due to his or her creditor status.

Under the FinCEN rules, a creditor is exempt if the creditor meets one or more conditions to be treated as a beneficial owner “solely through rights or interests for the payment of a predetermined sum of money, such as a debt incurred by the reporting company, or a loan covenant or other similar right associated with such right to receive payment that is intended to secure the right to receive payment or enhance the likelihood of repayment.” Note that convertible debt would be considered an ownership interest under the CTA and could thus render the creditor exemption unavailable.

Are there any other exceptions to the reporting rules?

Yes. In addition to the reporting company exemptions, FinCEN’s rules include four special reporting rules that may affect reporting obligations:

  1. Minor Child. As noted above, reporting company does not need to report information about a minor child that qualifies as a beneficial owner, provided the reporting company report BOI about the minor child’s parent or legal guardian.
  2. Company applicant reporting for existing companies. Also as noted above, if the reporting company was created or registered before January 1, 2024, it does not need to report BOI for its company applicant(s). Such a reporting company must instead specify on its initial BOI report that the reporting company was created or registered before January 1, 2024.
  3. Owned by exempt entity. If an exempt entity has or will have a direct or indirect ownership interest in a reporting company and an individual is a beneficial owner of the reporting company exclusively by virtue of the individual’s ownership interest in the exempt entity (or a series of exempt entities), then the report may include the name of the exempt entity (or exempt entities) in lieu of beneficial ownership information with respect to such beneficial owner. However, if such individual exercises substantial control of the reporting company or the individual owns or controls ownership interests in a reporting company through both exempt and non-exempt entities, the reporting company would be required to report BOI for that individual.
  4. Foreign pooled investment vehicles. A foreign company that is not a reporting company under the pooled investment vehicle exemption does not need to report BOI about a beneficial owner (or company applicant), but such foreign company must report information about one individual who exercises substantial control over the company (or, if there are multiple individuals with substantial control, the person who has the greatest authority over the strategic management of the company).

What happens if a beneficial owner refuses to provide BOI?

The CTA rules do not excuse a reporting company from filing an incorrect or incomplete report due to a beneficial owner refusing to provide BOI, and the company, its senior officers, and the beneficial owner who refuses to provide BOI may all be subject to enforcement action. FinCEN has stated that both individuals and entities may be liable for willfully failing to report complete or updated beneficial ownership information and that, in such circumstances, individuals can be held liable if they either cause the failure or are a senior officer at the company at the time of the failure. Violations of the CTA are discussed in more detail below.

FinCEN also has stated that an enforcement action can be brought against an individual who willfully causes a reporting company’s failure to submit complete or updated BOI to FinCEN and that this would include a beneficial owner or company applicant who willfully fails to provide required information to a reporting company.

When are additional reports or corrections required?

Changes in previously reported information generally must be reported to FinCEN, as must changes in new beneficial owners or a company’s qualifying for an exemption under the CTA.

A reporting company must monitor its previously reported information for changes and report those changes (and also correct inaccuracies in previously reported information). A reporting company must report a change to previously reported information concerning the reporting company (including who constitutes its beneficial owners) or previously reported beneficial ownership information concerning its beneficial owners within 30 days of the change. At the time a reporting company files an updated or corrected report, it must update for all changes and correct all inaccuracies contained in any prior report.

A reporting company that has previously reported inaccurate information must file an updated or corrected report within 30 calendar days after the date on which such reporting company becomes aware or has reason to know of the inaccuracy.

Examples of changes in information previously reported that trigger additional reporting obligations include:

  • the issuance or redemption of shares, membership interests or other equity interests resulting in new beneficial owners (which may result in an individual becoming a beneficial owner, an individual no longer qualifying as a beneficial owner, or both);
  • a change in senior officers;
  • a change in directors or managers;
  • a change in the reporting company’s legal name;
  • a change in the reporting company’s principal place of business or primary US location;
  • a change in a beneficial owner’s beneficial ownership information, such as legal name, address or driver’s license or passport numbers, but not expiration dates of identification documents;
  • a change in the reporting company’s trade names or “doing business as” names (whether or not registered);
  • a change in the reporting company’s jurisdiction of formation;
  • a conversion of the reporting company to a different type of entity (e.g., a corporation to a limited liability company); and
  • a change in the reporting company’s taxpayer identification number.

Other changes that would trigger a reporting obligation include:

  • a company no longer meeting an exemption, thereby becoming a reporting company;
  • a transfer of equity interests upon death, in which case the change with respect to required information will be deemed to occur when the estate of the deceased beneficial owner is settled, either through the operation of the intestacy laws of a jurisdiction within the United States or

through a testamentary deposition), and the updated report must, to the extent appropriate, identify any new beneficial owners;

  • a minor child attains age of majority and qualifies as a beneficial owner, in which case beneficial ownership information with respect to that individual would need to be reported (and that individual’s parent or legal guardian who was previously reported as a beneficial owner would no longer be reported with respect to the child); and
  • the granting of certain control rights constituting substantial control of the reporting company to an individual that was not previously a beneficial owner of that reporting company.

Note that a single change could lead to multiple reports being required. For example, if a beneficial owner moves to a new principal place of residence, the reporting company would be required to file an updated report with FinCEN that includes that updated address within 30 days of the change. If that beneficial owner thereafter obtains a new driver’s license or other identifying document that includes the new address, the reporting company also would have to file an updated report with FinCEN that includes an image of the new identifying document.

Changes in information of company applicants do not need to be reported. However, reporting companies are required to correct any information about a company applicant that was inaccurate in the reporting company’s initial report.

What is a FinCEN identifier?

A “FinCEN identifier” 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. A reporting company may include in its report an individual’s FinCEN identifier in lieu of the detailed information that would otherwise be required. An entity’s FinCEN identifier may not be used in this manner except in very narrow circumstances.

What are the benefits of obtaining a FinCEN identifier?

A FinCEN identifier may be reported in lieu of beneficial ownership information, which may result in increased data security (an individual may prefer to submit his or her beneficial ownership information directly to FinCEN) and administrative efficiency (is easier for an individual to just provide a number, particularly where the individual is a beneficial owner of multiple reporting companies).

When a beneficial owner obtains a FinCEN identifier and the reporting company reports that beneficial owner’s FinCEN identifier in lieu of that individual’s BOI, the obligation to report updates to that beneficial owner’s BOI shifts from the reporting company to the beneficial owner. Accordingly, if the beneficial owner’s BOI changes, it is would be the beneficial owner, not the reporting company, that would be obligated to report the change to FinCEN within 30 days of that change.

Is an individual required to update information previously submitted to obtain a FinCEN identifier?

Yes. If there is a change in information previously submitted by an individual to obtain a FinCEN identifier, the individual (not any reporting company for which such individual is considered a beneficial owner) must file an updated application reflecting such change within 30 calendar days after the date on which such change occurs.

At present, there is no guidance as to whether an individual that received a FinCEN identifier but is no longer a beneficial owner of a reporting company has an ongoing obligation to keep that individual’s beneficial ownership current with FinCEN. FinCEN has indicated that it is considering options to allow individuals to deactivate a FinCEN identifier and that it will provide additional guidance on this functionality upon completion of that process.

Is an individual required to correct inaccuracies in information included in an application for a FinCEN identifier?

Yes. An individual must file a corrected application correcting all inaccuracies within 30 calendar days after the date on which the individual first becomes aware or has reason to know of any inaccuracy. Each corrected report must correct all inaccuracies in the information previously reported to FinCEN.

Is a reporting company required to update or correct information previously submitted to FinCEN to obtain a FinCEN identifier?

Yes. A reporting company must file an updated or corrected report within 30 calendar days after the date on which such reporting company becomes aware or has reason to know of the inaccuracy. Each corrected report must correct all inaccuracies in the information previously reported to FinCEN.

When a reporting company is owned by one or more intermediate entities, can the reporting company submit an intermediate entity’s FinCEN identifier?

Not unless there is identical ownership. A reporting company could report an intermediary entity’s FinCEN identifier in lieu of the beneficial owner information of that intermediate entity’s beneficial owners only if: (1) the intermediate entity has obtained a FinCEN identifier and provided that FinCEN identifier to the reporting company; (2) an individual is or may be a beneficial owner of the reporting company by virtue of an interest in the reporting company that the individual holds through an ownership interest in the intermediate entity; and (3) the beneficial owners of the intermediate entity and of the reporting company are the same individuals.

What is considered a violation of the BOI reporting obligations?

It is a violation of the CTA for any individual, reporting company, or other entity to:

  • willfully fail to report (or causes a reporting company to fail to report) complete or updated BOI to FinCEN; or
  • willfully provide, or attempt to provide, false or fraudulent BOI directly or indirectly (including by providing such information to another person or entity for purposes of a report or application under the CTA) to FinCEN.

The CTA defines “willfully” as “the voluntary, intentional violation of a known legal duty,” which would seem to require a deliberate evasion or the CTA’s reporting obligations or restrictions on access and use of BOI. However, FinCEN’s CTA rules state that each senior officer of a reporting company is responsible for the reporting company’s willful failure to report complete or updated beneficial ownership information , regardless of whether the senior officer took any voluntary, intentional action.

What are the penalties for failure to report complete or updated beneficial ownership information?

The CTA provides for both civil and criminal penalties for violations. Such penalties may include a civil penalty of not more than $500 for each day that the violation continues or has not been remedied, or criminal fines of not more than $10,000, imprisonment for not more than 2 years, or both.

Is there a safe harbor for a voluntary correction of inaccurate information?

Yes. The CTA provides a safe harbor under which a person will not be liable for submitting a report with inaccurate information if that person submits a corrected report within 90 days of the date on which such person submitted the inaccurate report. The safe harbor applies only if:

  1. the person has reason to believe that any report submitted by such person contains inaccurate information;
  2. the person submits a report containing correct information within 90 days after the date on which such person submitted the initial report; and
  3. at the time such person submitted the relevant report that is being corrected, such person did not both (1) act for the purpose of evading the reporting requirements and (2) have actual knowledge that any information contained in the report (apparently not just the information being corrected) is inaccurate.

The safe harbor does not apply where a report is corrected more than 90 days after it was filed, even if a reporting company files the correction within 30 days after becoming aware or having reason to know that a correction is needed as required 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 in 2024, virtually all companies should:

    • determine if they are reporting companies, and, if they are,
    • identify their beneficial owners,
    • develop systems and procedures for gathering, maintaining, and monitoring beneficial ownership information, and requiring beneficial owners to provide the same, and
    • gather beneficial ownership information from their beneficial owners and, if applicable, company applicants.

Determine Status as Reporting Company

Companies should determine whether they, their subsidiaries, and any other entity in which they have invested, are exempted from reporting under the CTA. Companies that have portfolio companies or fund investments should start identifying each potential reporting company in which it has an interest and to determine if any exemption applies to such potential reporting company.

Determine Beneficial Owners

Determining beneficial ownership will be relatively straightforward for many small companies, but doing so will be more complicated for companies with complex organizational structures, complex governance, or both. In order to determine beneficial owners, companies should ensure they maintain complete and accurate records of ownership of their equity interests and review existing governance documents (e.g., bylaws, operating agreements, agreements with minority equity holders, voting trusts, shareholder agreements) to determine who ultimately possesses substantial control.

Determine Whether Any Exemptions Apply to Beneficial Owners

Individuals that would otherwise be required to be included as beneficial owners may be exempt from reporting under the CTA. Note, however, that qualification for an exemption may change over time, so reporting companies need to monitor for such changes.

Establish Compliance Procedures and Systems and Gather Beneficial Ownership Information

Once a company’s beneficial owners are determined, the company will need a system in place to securely collect and store the beneficial ownership information of its beneficial owners, to monitor for changes therein, and to report changes to FinCEN.

Determine Company Applicants

Reporting companies formed or organized on or after January 1, 2024 will need to identify their company applicants and collect and store their beneficial ownership information. A reporting company’s legal counsel or other advisers or service providers may be a company applicant if they meet the criteria for company applicant. Reporting companies do not, however, need to monitor for changes in beneficial ownership information of company applicants, as there is no obligation to report such changes (unlike the obligation to report changes in other beneficial ownership information).

Review Operating Agreements, Shareholder Agreements and Similar Governance Documents

Companies should update their organizational documents to include express obligations for shareholders, members, managers, directors, and officers to provide information necessary for company to submit and update BOI. FinCEN makes it clear that it is the reporting company that bears responsibility for ensuring the accuracy of the beneficial ownership information reported by it. Reporting companies must therefore ensure the accuracy of beneficial ownership information provided by their beneficial owners and company applicants. Lewis Rice has prepared model CTA clauses for limited liability company agreements, shareholder agreements, and corporate bylaws, and Lewis Rice attorneys would be pleased to assist companies in adopting these provisions.

In lieu of amending organizational documents, companies could consider entering into contracts with their beneficial owners under which they agree to provide and update when required beneficial ownership information to facilitate the companies complying with their obligations under the CTA. Those contracts should also permit the reporting company to in turn provide such beneficial ownership information to other reporting companies in which it has an interest to fulfill its obligations under the CTA and/or any organizational documents or contracts.

Reporting companies can limit their obligation to provide (and potential liability for failing to provide) complete and accurate beneficial ownership information of its beneficial owners by requiring those beneficial owners to obtain and provide to the reporting company FinCEN identifiers. Once the beneficial owner obtains the FinCEN identifier, the obligation to keep the beneficial owner’s beneficial ownership information current with FinCEN shifts from the reporting company to the beneficial owner.

Reporting companies should also consider implementing processes to obtain consents from beneficial owners identified in beneficial ownership reports. Those reports, and the information contained therein, could end up being shared by FinCEN with governmental agencies (including law enforcement agencies), financial institutions, and federal functional regulators.

Companies should be mindful to tailor confidentiality provisions in organizational documents, shareholder agreements, and other similar agreements to permit disclosures required by applicable law, including the CTA, and other disclosures necessary to satisfy any contractual obligations owing to third parties with respect to facilitating the third parties’ compliance with the CTA.

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.