Summary of 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 on or after January 1, 2024, and before January 1, 2025 will have 90 calendar 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. Companies formed or registered after January 1, 2025 will have 30 days to file their initial reports.

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.