In late December 2020, Congress passed the Corporate Transparency Act (the “Act”), which established beneficial ownership information reporting requirements for certain corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. The Act is intended to enhance reporting of the true owners of business entities to help the government identify and counter potential money laundering and terrorism financing using shell companies. The Act will require most corporations, limited liability companies, limited partnerships and other entities that are formed by filing paperwork with a Secretary of State in the United States to report information about their beneficial owners—the persons who ultimately own or control the company – to the Financial Crimes Enforcement Network (FinCEN), and there are significant civil and criminal penalties for failing to comply. Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, the Act is intended to help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds. FinCEN is part of the Treasury, but it is not the IRS, and as of now, the database that FinCEN will maintain will not be public record, but it will be available to various governmental agencies.
Trust Company is making our clients aware of the new rules that affect anyone who owns a “Reporting Company,” which the legislation defines as a business that was created by a filing with a Secretary of State’s office. As mentioned above, these businesses typically include corporations, limited liability corporations (LLCs), and limited partnerships (LPs). Note that certain entities are excepted from these filing requirements, including but not limited to charities, large companies (20+ employees and $5MM or more in revenue) and certain types of other entities that are already subject to significant government regulation, such as banks. We are providing this information as a courtesy to our clients, but this does not constitute tax, legal or investment advice and should not be used as a substitute for the advice of professional legal counsel.
Here are some of the basic reporting requirements of the Act:
What must be reported – Reporting Companies will have to file reports that state information regarding the company itself as well as for any individual who is a “Beneficial Owner.” The information to be reported on a Beneficial Owner consists of legal name, date of birth, home street address, and a PDF of the individual’s passport or driver’s license.
Who is a beneficial owner – Broadly, anyone who owns 25% or more of the company OR who has substantial control over the company is considered a Beneficial Owner. Note that there are still significant questions about who is considered a Beneficial Owner, and it is anticipated that there will be further guidance forthcoming.
When must reports be filed and by whom – For entities created on or after January 1, 2024, reports are due 90 days from creation of the entity. The 90 days will shorten to 30 days for entities created on or after January 1, 2025. For entities in existence prior to January 1, 2024, reports are due by January 1, 2025. Changes to required information for the company or for beneficial owners also must be reported within 30 days of the change. The company is required to report, meaning those managing the company, not the owners, will bear the reporting burden.
Below are important points for you and your advisors to consider about complying with the legislation:
- Could any company that you manage or own be subject to these rules?
Virtually all closely-held entities formed by a filing with the Secretary of State are going to be Reporting Companies, including family LPs and LLCs. Contact your attorney or accountant with a list of your existing companies and determine whether any of them constitute a Reporting Company.
- How will you comply with these rules?
Technically, the filing requirement is the responsibility of the company’s management, not the company’s owners, but the company owners will want to ensure their company is following the requirements of the Act. You may consider asking your corporate or estate planning attorney or accountant about whether they can handle your company’s FinCEN reporting requirements (they may already be filing Annual Reports for the company with the Secretary of State), and you should make someone in your company’s management primarily responsible for the filing requirement.
- Make Beneficial Owners get a FinCEN identifier.
In lieu of the Reporting Company listing all its Beneficial Owners’ detailed personal information, the owners can obtained a FinCEN identifying number, and the Reporting Company can provide those numbers on its report. Recall that changes to reported information for the Reporting Company or its Beneficial Owners after the initial filing also must be reported, but if the Beneficial Owners have FinCEN identifying numbers, the Beneficial Owner must file the update. Advise the Beneficial Owners that if they move or change their name, in addition to updating other documents, they need to update their FinCEN information.
- Continue to monitor for updates.
As mentioned above, there are still questions about who constitutes a “Beneficial Owner” of a Reporting Company. People who have “substantial control,” including “substantial influence” over important company decisions, are included in this definition. It is likely, until there is more guidance, that your advisor will recommend listing everyone involved with the company, including officers and managers, as Beneficial Owners. You can continue to monitor for updates here.
- Get prepared!
Because any company created on or before December 31, 2023, has until January 1, 2025 to comply with these rules, if you are planning to form an entity, do it before the end of the year. If you must form after December 31, 2023, make sure you have FinCEN identifiers for all Beneficial owners before your file with the Secretary of State since the FinCEN report is due 30 days after filing.
We have enclosed several guides that were published by FinCEN. We hope you find these resources useful and informative. While we can answer general questions about these requirements, we cannot give specific advice on whether you have a filing obligation or file for you. We will provide as much information as possible to help you navigate this new law.
Resources:
