NAVIGATING THE CORPORATE TRANSPARENCY ACT AND BENEFICIAL OWNERSHIP INFORMATION REPORTING REQUIREMENTS
Author
Ricardo A. Arce
The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021 as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021.[i] On September 30, 2022, FinCEN issued a final rule (87 Fed. Reg. 59,498 (Sept. 30, 2022)) (the “Final Rule”) implementing the CTA's Beneficial ownership information (“BOI”) reporting requirements which take effect on January 1, 2024 (the “Effective Date”).[ii] The principal mandate of the CTA is to require certain business entities to information about the reporting company, any company applicants and its beneficial owners.
THE INFORMATION THAT MUST BE REPORTED
Report certain beneficial ownership information (“BOI”) to the US Department of the Treasury's Financial Crimes Enforcement Network (“FinCEN”) and to promptly report any subsequent change in BOI; and disclose information about the “reporting company” and “applicant” who created such entity or registered it to do business in the US.
The term “beneficial owner” means, with respect to a reporting company, any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.[iii]
The term “applicant” means any individual who--files an application to form a reporting company; or registers or files an application to register a foreign reporting company to do business in the US.[iv]
WHICH ENTITIES MUST REPORT
Domestic corporations, LLCs, LLPs or other entities created by the filing of a document with a secretary of state of any State or similar office.
Non-US entities that are corporations, LLCs, LLCs, LLPs or similar entities formed under the law of a foreign country and registered to do business in any state by the filing of a document with a secretary of state of any State or any similar office.
Exempt entities, include, but are not limited to, large operating companies,[v] public companies,[vi] investment companies or investment advisers, [vii]venture capital fund advisers,[viii] insurance companies and insurance producers[ix] and public accounting firms.[x]
WHEN THE REPORT MUST BE FILED
Reporting Entity From date of existence or registration
Any domestic reporting company created
on or after January 1, 2024, and before January 1, 2025................................................ 90 calendar days
Any domestic reporting company created
on or after January 1, 2025.......................................................................................……………... 30 calendar days
Any entity that becomes a foreign
reporting company on or after
January 1, 2024, and before January 1, 2025........................................................................ 90 calendar days
Any entity that becomes a foreign
reporting company on or after January 1, 2025.................................................................. 30 calendar days
Any domestic reporting company
created before January 1, 2024
and any entity that became a foreign
reporting company before January 1, 2024......................................…………………….……....... no later than January 1, 2025[xi]
PENALTIES FOR VIOLATION; LIMITED SAFE HARBOR
Among other penalties, penalties for willfully providing false or fraudulent information can be up to $10,000 and imprisonment for not more than 2 years, or both.
The CTA provides a penalties safe harbor if a reporting company that has reason to believe that a submitted BOI report contains inaccurate information files a corrected report within 30 days after becoming aware or having reason to know of the inaccuracy.
[i] 31 U.S.C. § 5336
[ii] Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg 59,498-01, September 30, 2022.
[iii] 31 C.F.R. § 1010.380
[iv] 31 U.S.C. § 5336(a)(2)
[v] 31 C.F.R. § 1010.380(c)(2)(xxi)
[vi] 31 C.F.R. § 1010.380(c)(2)(i)
[vii] 31 C.F.R. § 1010.380(c)(2)(x)
[viii] 31 C.F.R. § 1010.380(c)(2)(xi)
[ix] 31 C.F.R. § 1010.380(c)(2)(xiii)
[x] 31 C.F.R. § 1010.380(c)(2)(xix)
[xi] 31 C.F.R. § 1010.380(a)(1)