Main Menu

Publications

PDF

FAQ: New Disclosure Requirements Under the Corporate Transparency Act

2024

Beginning January 1, 2024, new regulations by the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA) will require many entities to report information regarding their “beneficial owners” and “company applicants.” This new requirement will affect approximately 32 million existing entities and an estimated 5 million new entities annually moving forward. This FAQ will outline the new requirements and provide guidance for companies that will be required to report under the CTA.

Table of Contents


What Companies Need to Report?

The CTA requires all “reporting companies” to comply with the new FinCEN regulations. A “reporting company” is a corporation, limited liability company, or other similar entity, which was created by filing a document with the secretary of state or similar office of a State or Tribe. Reporting companies include foreign entities registered to do business in the U.S. after filing a document with the secretary of state or similar office of a State or Tribe.

If you had to file a document with a State or Tribal-level office, such as a secretary of state, to create your entity or register it to do business in the U.S., then your entity is a reporting company, unless an exemption applies.

Are Any Companies Exempt from the Reporting Requirements?

The CTA includes a list of 23 categories of exempt entities, including an exemption for large operating companies. To qualify as a large operating company, the entity must: (i) operate a physical office within the United States, (ii) have 20 or more full-time employees, and (iii) have at least $5 million in gross receipts from U.S. income as reported on its previous year’s tax return. The following entities are also explicitly exempted from the reporting requirements:

  • Securities Issuers
  • Domestic Government Authorities
  • Banks
  • Domestic Credit Unions
  • Depository Institution Holding Companies
  • Money Transmitting Businesses
  • Brokers or Dealers in Securities
  • Securities Exchange or Clearing Agencies
  • Other Entities Registered Pursuant to the Securities Exchange Act of 1934
  • Registered Investment Companies and Advisers
  • Venture Capital Fund Advisors
  • Insurances Companies
  • State Licensed Insurance Producers
  • Entities Registered Pursuant to the Commodity Exchange Act
  • Accounting Firms
  • Public Utilities
  • Financial Market Utilities
  • Pooled Investment Vehicles
  • Tax Exempt Entities
  • Entities Assisting Tax Exempt Entities
  • Large Operating Companies
  • Wholly owned Subsidiaries of Certain Exempt Entities
  • Inactive Businesses

What Company Information Should Be Included in the Report?

Reporting companies must provide the following information:

  • The full legal name of the reporting company.
  • Any trade name or “doing business as” name of the reporting company.
  • The street address or the principal place of business of the reporting company.
    • For a company with a principal place of business outside of the U.S., the company should provide the street address of the primary location in the U.S. where the company conducts business.
    • The street address requirement is not satisfied by a P.O. Box or the address of a company formation agent or other third party.
  • The State or Tribal jurisdiction of formation of the reporting company (or for foreign reporting entities, the State or Tribal jurisdiction where such company first registers).
  • The reporting company’s IRS taxpayer identification number (“TIN”).
    • Foreign entities without a TIN are required to provide a foreign tax identification number.

Who Are Beneficial Owners?

There must be at least one beneficial owner of each reporting company. A “beneficial owner” is any individual who, directly or indirectly: (i) owns or controls at least 25% of the entity, or (2) exercises substantial control over the entity.  FinCEN defines these two factors as follows:

  • Ownership or Control of at Least 25%:
    • Ownership includes the aggregate of any of the following: equity, stock, voting rights, a capital or profit interest, any instrument convertible to a stock or equity interest, an option to buy an interest in the entity, and any other contract, relationship, or understanding used to establish ownership. Any options or convertible instruments must be treated as exercised for the purpose of calculating ownership.
  • Substantial Control:
    • An individual exercises substantial control if they meet any of the following:
      • Is a senior officer of the reporting company;
        • This includes all senior officers of the reporting company (including, but not limited to, the President, CEO, general counsel, COO, CFO, etc.)
        • Regardless of an individual’s title, if they perform functions similar to a senior officer in the ordinary sense, they must report as a beneficial owners. Further analysis will be needed to understand which individuals meet the “senior officer” prong under the CTA.
      • 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 discussions regarding: the business, finances, and structure of the company; or
      • Possesses any other form of substantial control over the reporting company.

Notably, the ownership or control requirement may be met through control of an ownership interest owned by another individual, including any individual acting as the trustee, beneficiary, or grantor of a trust which owns an interest in a reporting company.

There are five exemptions from the definition of a beneficial owner, including:

  • Minors;
  • Nominees, intermediaries, custodians or agents of the beneficial owner;
  • Creditors;
  • Employees not acting as senior officers; and
  • Individuals whose only interest is a future inheritance.

Who Are Company Applicants?

The “company applicant” is the individual who:

  • Acts as a direct filer (by physically or electronically filing the document that creates a domestic reporting company or the document that first registers a foreign reporting company); or
  • Directs or controls the filing action (by being primarily responsible for directing or controlling the filing of the creation or first registration document).

What Information Should Be Included in the Report Regarding Beneficial Owners and Company Applicants?

Required information for beneficial owners and company applicants includes the following:

  • Full legal name.
  • Date of birth.
  • Complete current address.
    • Beneficial owners must provide their residential address.
    • If a company applicant formed or registered a reporting company in the course of the company applicant’s business, the address required is that of the business. In all other cases, the company applicant must provide their residential address.
  • A unique identifying number from an acceptable identification document.
    • Acceptable identification documents include a nonexpired: U.S. passport, State, local or Tribal identification document, State-issued driver’s license, or foreign passport.
  • An image of the identifying document.

Will I Need to Provide My Information Each Time I Register or Form an Entity?

Beneficial owners, company applicants and reporting companies may request a unique identifier (“FinCEN ID”) from FinCEN by providing FinCEN with the same information required from the individual under the CTA reporting requirements (outlined above). The FinCEN ID may be provided to the reporting company for its reporting purposes instead of sending the reporting company their personal information each time it is required.

When Do I Need to File Reports?

  • For companies in existence or registered prior to January 1, 2024, the deadline to file the initial report with FinCEN is January 1, 2025.
    • Companies in existence prior to 2024 can begin filing their reports no earlier than January 1, 2024.
  • For companies created or registered on or after January 1, 2024 and before January 1, 2025, the initial report is due within 90 calendar days of the date of creation or registration. The date of creation is the earlier of:
    • The date on which the company received actual notice that the creation has become effective, or
    • The date on which the secretary of state or similar office has provided public notice that the domestic company has been created or the foreign company has been registered.
  • For companies created or registered on or after January 1, 2025, the initial report is due within 30 calendar days of the date it was created.

Where Do I File This Information?

Reporting companies will submit beneficial ownership information via a database through FinCEN’s website (https://www.fincen.gov/boi). This database will not be operative until January 1, 2024. Reporting companies will use this database to submit their initial report as well as to update or correct any necessary information. The database will provide the filer with a confirmation of receipt once the report has been filed.

What If Previously Submitted Information Changes or Is Inaccurate?

The CTA places the responsibility to correct inaccurate or changed information on the reporting company itself.

  • If any of the previously submitted information changes, reporting companies will have 30 days to update the report. The company is not required to update any information for company applicants.
  • With respect to inaccurate information reported to FinCEN, the reporting company is required to correct inaccuracies within 30 days of the date on which it becomes aware of the mistake.
  • There is no need to report the dissolution or termination of a reporting company.

How Can I Prepare?

  • Determine whether your company will be considered a reporting company.
  • If your entity fits within one of the exemptions, no further action is required.
  • If your entity falls under the parameters of a reporting company, begin gathering the information required for the initial report (necessary information for the initial report outlined above).
    • For companies formed before January 1, 2024, company applicant information is not required.

If you plan on creating any entities after January 1, 2024, it may be useful to establish a process to identify beneficial owners and ensure all information is collected at the time the entity is formed or registered.

Are There Any Consequences for Failing to Report?

An attempt to provide false, fraudulent beneficial ownership information, or any willful failure to report or update beneficial ownership information, is unlawful under the CTA and will result in a reporting violation.

  • The penalty for a reporting violation includes:
    • A civil penalty of up to $500 a day;
    • A fine of up to $10,000; and
    • Imprisonment for no more than two years.

Penalties for willful violation of the CTA apply to company applicants, beneficial owners, and reporting companies. For clarity, any person who is a beneficial owner will be penalized personally for providing false information or for willfully failing to report or update their information to FinCEN. The person who fails to report on behalf of a reporting company is defined as the person who causes the failure, or who is a senior officer at the time of the failure.

Additionally, the unauthorized disclosure or use of beneficial ownership information obtained by a report made to FinCEN will result in penalties under the CTA.

  • The penalty for an unauthorized disclosure includes:
    • A civil penalty of up to $500 a day;
    • A fine of up to $250,000; and
    • Imprisonment for no more than five years.

The unauthorized use or disclosure made while violating any other laws, or when done as a pattern of any illegal activity involving more than $100,000 in a one-year period, results in a fine of up to $500,000 and up to 10 years in prison.

For any additional questions or clarifications, please feel free to contact an attorney in our Corporate Department. Our team is ready and available to provide personalized assistance and support for your compliance needs. 


This content is made available for educational purposes only and to give you general information and a general understanding of the law, not to provide specific legal advice. By using this content, you understand there is no attorney-client relationship between you and the publisher. The content should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Practice Areas

Back to Page

We use cookies on our website to improve functionality and performance, analyze website traffic and enable social media features. By continuing to use our website, you agree to our use of cookies.