With a couple of months left in the year, 2024 is just around the corner. Do you have a New Year’s Resolution yet? Well, I have an important one that will impact about 30 million businesses: the Corporate Transparency Act. This new law requires most businesses to report their beneficial owners’ and company applicants’ personal information to the Financial Crimes Enforcement Network (“FinCEN”) starting January 1, 2024.
What is the Corporate Transparency Act?
The Corporate Transparency Act (“CTA”) was enacted by Congress in 2021 to “unmask shell companies and protect the U.S. financial system from abuse from money launderers, drug traffickers, sanctioned oligarchs, and other criminals,” according to Himamauli Das, Acting Director of FinCEN.
The CTA requires many entities (corporations, LLCs, and any other entities that file with the secretary of state or similar office) created in or registered to do business in the United States to report information about the company itself, its beneficial owners, and its company applicants to FinCEN who will compile this information into a database. While the information reported will be personal information about beneficial owners and company applicants, the reporting will be done by the business to FinCEN. Additionally, almost all privately owned entities, regardless of their size, will be required to comply with CTA. Please visit FinCEN’s website, linked in the concluding paragraph, to learn more.
Who is a Beneficial Owner?
In general terms, a beneficial owner is an individual (1) who directly or indirectly exercises “substantial control” over the company or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the company.
Substantial control is precisely what it sounds like: an individual who has the power to influence decisions within the company. Ownership interests generally refer to stock when referring to a corporation but could include more complex instruments.
Let’s see how this works in an example.
The company is a corporation with Angie owning 50 percent of the stock, Bob owning 40 percent, Chad owning 10 percent, and Debra acting as the President, but she does not own any stock.
Under this example, Angie, Bob, and Debra are all beneficial owners and their information must be reported to FinCEN. Angie and Bob must have their information reported since they own or control 25 percent or more of the ownership interest. Debra must have her information reported since she directly or indirectly exercises substantial control and power over the corporation despite not owning any interest in the corporation. Chad’s information will not be reported as he is not a beneficial owner.
Who is a Company Applicant?
There can be up to two individuals who qualify as company applicants: (1) the individual who directly files the document that creates or registers the company; and (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document.
Let’s look at an example.
Attorney Aubree prepares the Articles of Organization based on information given by her client, Charlie. Attorney Aubree asks Paralegal Bryan to file the document. Paralegal Bryan files the Articles of Organization with the relevant secretary of state’s office.
Attorney Aubree is the first company applicant since she was primarily responsible for directing or controlling the filing of the relevant document that created the company since she asked Paralegal Bryan to file the document. Paralegal Bryan is the second company applicant since he directly filed the document that created the company. The client, Charlie, is not a company applicant here. First, there may be only two company applicants. Second, Charlie did not directly file the document that created the company, nor was he responsible for controlling the filing, despite providing information to help create the company. However, Charlie may be a beneficial owner, depending on his role in the company.
What information must be reported?
The information that needs to be reported depends on when the company was created or registered.
- If a company was created or registered on or after January 1, 2024, it will need to report information about itself, its beneficial owners, and its company applicants.
- If the company was created or registered before January 1, 2024, it only needs to report information about itself and its beneficial owners.
In the above example, if the company created by Attorney Aubree and Paralegal Bryan was created in 2022, it only needs to report information about itself and its beneficial owners (maybe Charlie). If the company was created in 2025, the company needs to report information about itself, its beneficial owners (maybe Charlie), and its company applicants (Attorney Aubree and Paralegal Bryan). This way, you do not need to track down any past company applicants if your business is already created or registered before 2024.
Required Information
- A company will have to report its:
- Legal name
- Trade names or DBAs, if any
- Street address
- Jurisdiction of formation
- Taxpayer Identification Number
- For both a beneficial owner and a company applicant, the company must report the same information:
- Individual’s name, date of birth, and address*
- A unique identifying number from an acceptable identification document
- Jurisdiction that issued the identification document
* For a beneficial owner, the company must report the residential street address of the individual. For a company applicant, the address must be the company applicant’s current business address if the individual engages in the business corporate formation or files the formation/registration in the course of that business. Examples of company applicants in this scenario include attorneys, paralegals, and corporate formation agents.
Identification Documents
FinCEN lists the following as acceptable identification documents:
- Non-expired driver’s license issued by a U.S. State; A “U.S. state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.
- Non-expired identification document issued by a U.S. state or local government, or Indian Tribe that is issued to identify the individual. For example, a non-driver identification card issued by a state Department of Motor Vehicles would qualify because it is issued for identification purposes.
- Non-expired passport issued by the U.S. government.
- If the individual does not have any of the above, the company may provide the identifying number from a non-expired passport issued by a foreign government.
How to submit this information?
The company will report all the necessary information through an online portal available via FinCEN’s website. It is still being developed and is not accessible at the time of publication of this blog.
Important Dates
- The reporting requirements begin 1/1/2024.
- Existing Business: For entities formed prior to 1/1/2024, you have until 1/1/2025 to have reports completed and filed.
- New Businesses: For entities formed on or after 1/1/2024, you have 30 days from the date the entity is created to have reports completed and filed.
- Changes: If there are any changes in the information filed for any entity, the change must be reported within 30 days. The 30-day deadline runs from when the company receives notice that its registration is effective.
- Annual Registration: Required to ensure information is updated.
What happens if you fail to comply with the CTA deadlines?
If a company that is required to comply with the CTA does not, there is a fine of $500 per day and/or a possible felony with up to two years in prison.
Conclusion: What to do before January 1, 2024?
While FinCEN does not accept any early submissions, you should start identifying the beneficial owners and potential company applicants. Gathering this information now will make for a smoother submission process in 2024 and ensure you are not missing any required information. You do not want to run the risk of missing information, meaning noncompliance or a late submission.
Gathering your information before the submission deadline will help your company familiarize itself with the reporting process. If you have questions about this new reporting requirement, email Aubree at Aubree.manley@vennlawgroup.com or visit FinCEN Issues Initial Beneficial Ownership Information Reporting Guidance | FinCEN.gov to learn more.
Aubree Manley
is an attorney at Venn Law Group who works in corporate law and commercial real estate, including mergers and acquisitions, business agreements, business formation, leasing and financing, franchising, contract drafting and negotiating, and succession planning. In addition to her law degree, Aubree also has a background in accounting and finance.
Disclaimer: This blog is not inclusive of all requirements and facts about the Corporate Transparency Act. Please do not rely solely on this blog for your information and compliance with the Corporate Transparency Act. The blog writer, the law firm associated with the blog writer, and all agents in connection with this blog disclaim any and all liability, claims, injury, and damages resulting from this blog.