The Corporate Transparency Act (CTA)
Background:
In January of 2021, Congress passed the Corporate Transparency Act (“CTA”) as a part of its annual National Defense Authorization Act. With the goal of combating money laundering, the financing of terrorism, and other illegal activities, the CTA sets forth requirements for many companies to disclose certain company information, including beneficial ownership information, to the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Reporting Requirements:
Beginning on January 1, 2024, most companies in the U.S. will be required to file a report with FinCEN identifying the beneficial owners of their company, any company applicants (if the company is created or registered after January 1, 2024) and certain other company information including legal name, address, jurisdiction of formation and taxpayer identification number (TIN). Reports will be filed electronically through FinCEN’s secure filing system, and there will be no filing fee.
A beneficial owner is any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company or (2) owns or controls at least 25% of the ownership interests of a reporting company.
Regarding company applicants, up to two qualify: first, the individual who directly files the document that creates, or registers, the reporting company; and second, the individual that is primarily responsible for directing or controlling the filing of the document. In the case of a law firm facilitating a filing (whether submitting the filing directly or through a service company), FinCEN seems to consider the attorney in charge of the project to be a company applicant in addition to the individual who directly submits the filing to the state. See FinCEN’s commentary on their Final Rule regarding Beneficial Ownership Information Reporting Requirements at https://www.federalregister.gov/d/2022-21020/p-469.
For each beneficial owner and company applicant, the reporting company will be required to report the individual’s (1) legal name, (2) birthdate, (3) an identifying number from a driver’s license, passport or other approved document and an image of such document, and (4) a current address. If an individual chooses, they may submit these four pieces of information to FinCEN directly so that FinCEN can provide them with a “FinCEN identifier” which can then be listed on the report in lieu of the required information.
Due Dates:
Reporting companies formed or registered before January 1, 2024 will have one year to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days.
Unknowns:
FinCEN is still in the process of developing rules for who may access beneficial ownership information and is also in the process of creating an electronic filing system to house the information submitted. Additionally, FinCEN is in the process of developing the report form that companies will be required to submit and creating rules governing the use of FinCEN identifiers.
Guidance from FinCEN – Helpful Links:
FinCEN has recently released some helpful guidance materials to assist companies in understanding their filing obligations. Below are links to:
- Beneficial Ownership Reporting – Key Questions
- Beneficial Ownership Information Report Filing Dates
- Beneficial Ownership Information Reporting – Frequently Asked Questions
- Beneficial Ownership Information Reporting Rule Fact Sheet
- Small Entity Compliance Guide
Webinar Resources:
Video Recording: Watch here!
Slide Deck: Corporate Transparency Act: Ready or Not, Here it Comes!
Capitol Services Insights:
Questions for Capitol Services:
For your CTA questions, please reach out to us at [email protected].
Capitol Services’ Approach:
Capitol Services has been closely monitoring the new filing requirements and has met with FinCEN representatives to gain clarification and to provide our feedback. Capitol Services is developing processes to securely receive and submit beneficial ownership reports on behalf of clients and looks forward to working with your firm to assist with the new filing requirements.
We recognize that there may be different interpretations of the definitions of the two types of company applicants. When filing a beneficial ownership report for an entity we helped form, we will identify the Capitol Services employee who submitted the formation filing as the entity’s first company applicant. It will be up to the client to determine which party we should list as the entity’s second company applicant.