In 2021, Congress passed the Corporate Transparency Act (“CTA”) which takes effect in 2024.[1] The CTA requires certain companies to report information about itself and its owners to the Financial Crimes Enforcement Network division of the U.S. Department of Treasury (“FinCEN”). [1] 31 U.S.C. §5311 et. seq.; 31 C.F.R. §1010.100 et. seq.

The law requires “reporting companies,” to provide information about themselves, their “beneficial owners,” and their “company applicants.”

Domestic Companies: Corporations, limited liability companies, and other entities created by filing with the secretary of state or a similar state or tribal office. Foreign Companies: Corporations, limited liability companies, and other entities formed under foreign law, registered to do business in a state or tribal jurisdiction. Exemptions: The law exempts 23 types of entities from reporting, including companies that report to the SEC, banks, investment companies, insurance companies, accounting firms, and tax-exempt entities. Also, the law exempts “large operating companies” which are companies with (i) more than 20 full-time employees in the U.S., (ii) physical operations in the U.S., and (iii) more than $5 million in gross receipts or sales. Please see 31 U.S.C. §5336(a)(11)(B) and accompanying regulations for a full list. See regulations here.

A beneficial owner is an individual who (i) exercises substantial control over the entity or (ii) owns at least 25% of the ownership interests of the entity, subject to exceptions. Ownership Interest: The CTA defines ownership interest broadly and includes equity, stock, capital interest, profit interest, and other instruments. Substantial Control: FinCEN rules direct that an individual has substantial control of a company if she (i) is a senior officer, (ii) has authority to appoint or remove senior officers or a majority of the board of directors, (iii) has substantial influence over important decisions, or (iv) has any other form of substantial control.

A company applicant is the individual who files a company’s formation documents.

All reporting companies must file an initial report with the following information: Each reporting company must report about itself: The company’s full legal name; The company’s trade name or “doing business as” (d\b\a) name; The company’s address or primary U.S. location (foreign companies); The jurisdiction of formation and registration; and The company’s Taxpayer Identification Number (including its Employer Identification Number) with the IRS. Each reporting company must report about each of its beneficial owners: The owner’s full legal name; The owner’s date of birth; The owner’s address; A unique number identifying the owner and an image of the document from which the number is taken, options being: a non-expired U.S. passport, a non-expired state or tribal I.D., a non-expired driver’s license, or a non-expired foreign passport if none of the above are available. Only reporting companies formed after January 1, 2024 must report company applicants.

Reporting companies have a continuing obligation to report changes to FinCEN, including changes in beneficial owner information (e.g., death, name, address, or driver’s license number). Reporting companies must report changes within 30 calendar days. Also, exempt-companies that lose their exemption must begin reporting within 30 days.

Companies formed before January 1, 2024 must file an initial report by January 1, 2025. Companies formed on or after January 1, 2024 must file an initial report within 30 calendar days of creation.

Failing to comply with CTA reporting requirements can result in civil and criminal penalties. A person who willfully files a false report or willfully fails to file a report is subject to a civil penalty of up to $500 per day for each day the violation continues, and criminal penalties of up to $10,000 and two years’ imprisonment.

FinCEN will begin accepting reports on January 1, 2024. If you would like to report for your company under the CTA without assistance from Payne & Jones, you can find more information on the Beneficial Ownership Information Reporting page on FinCEN’s website.