The Corporate Transparency Act is in Effect

The Corporate Transparency Act (the “CTA”) took effect in the United States on January 1, 2024, resulting in significant new beneficial ownership reporting requirements. These requirements have a sweeping effect, as many companies created in the United States or registered to do business in the United States are now required, regardless of business activities, to report certain information regarding their beneficial owners to the United States Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Notably, reporting companies created before January 1, 2024 have until January 1, 2025 to file an initial report. Given the approaching deadline, companies that have not yet considered their reporting obligations under the CTA are encouraged to do so right away. In light of the complexities of the CTA, it may take meaningful time to analyze potential exemptions, consider reporting obligations, prepare and submit required reports and implement new policies and procedures to monitor ongoing compliance. Further, these steps must be taken for each entity in a company’s organizational structure, as it is not sufficient to consider the reporting obligations of only the ultimate parent company.

Below we provide a brief overview of the potential exemptions as well as the reporting obligations. FinCEN has released a number of FAQs in response to questions received regarding compliance with various aspects of the CTA, which are available here.

Overview of CTA Requirements

Domestic and foreign companies subject to the CTA’s requirements are referred to as “reporting companies.” Domestic reporting companies include any corporation, limited liability company or other entity created by filing a document with a secretary of state or any similar office of a U.S. state, territory or Indian tribe, unless the entity fits within one of the exemptions laid out in the CTA. Foreign reporting companies include any corporation, limited liability company or other entity formed under the laws of a foreign country and registered to do business in any U.S. state, territory or tribal jurisdiction by the filing of a document with a secretary of state or any similar office, unless the entity fits within an exemption.

There are 23 exemptions from being deemed a reporting company, which predominantly apply to large U.S. companies and their wholly owned subsidiaries, meaning that most smaller entities will be required to report beneficial ownership information. The exemptions cover, among others, large operating companies that meet specified requirements as well as certain entities registered with the Securities and Exchange Commission, banking institutions, non-bank financial institutions, public utilities and tax-exempt entities. In addition, there is an exemption for entities whose “ownership interests” (as defined in the CTA) are wholly owned by one or more of most types of exempt entities.

Reporting companies created or first registered before January 1, 2024 have until January 1, 2025 to file an initial report. Reporting companies created or first registered in 2024 have 90 days to file an initial report. Reporting companies created or first registered on or after January 1, 2025 will have 30 days to file an initial report. After an initial report is filed, there are no annual or quarterly filing requirements.  However, reporting companies must report changes to any previously reported information within 30 days after a change occurs.

Beneficial ownership reports must identify all of a reporting company’s “beneficial owners” and provide sensitive information about those individuals. Beneficial owners are natural persons that exercise substantial control over a reporting company or own or control at least 25 percent of the ownership interests of a reporting company.

Reporting companies created or registered on or after January 1, 2024, must also report their company applicants, which are up to two individuals: (1) the individual who directly files the document that creates or registers the company; and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.

Companies should analyze their reporting obligations under the CTA and establish policies, procedures and systems for this new reporting regime. In addition, companies should have a regular internal process for monitoring changes to beneficial ownership information for reporting companies and whether exempt entities continue to qualify for an exemption.

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