On January 1, 2024, a new law went into effect that requires the attention of every corporation, limited liability company, limited partnership, or other legal entity formed in the United States. Unless an exemption applies, the Corporate Transparency Act (the “CTA”) will require entities that register with any Secretary of State in the United States to file personal ownership information with the US Department of Treasury –Financial Crimes Enforcement Network (FinCEN).
For each affected entity, the CTA requires a separate federal filing disclosing personal information of every individual who is considered a “beneficial owner” of the entity, meaning those persons who directly or indirectly own (or have the right to receive) 25% or more of the entity or who have significant authority or influence over important business decisions – board members, and senior officers and other persons or entities who are important decision makers. For many entities, the determination of who would be considered a “beneficial owner” of the entity under the CTA is not obvious and may require detailed analysis.
The new law also requires new entities to provide personal information for “company applicants,” meaning (a) the individual who is responsible for filing the documents that created the entity or (b) the individual who is primarily responsible for directing or controlling the filing of the relevant formation or registration document by another. Legal counsel can be considered a company applicant if they meet these criteria.
Entities formed prior to 2024 will have until January 1, 2025 to make their initial filing. Entities formed in 2024 must make their initial filing within 90 days after formation. Entities formed in 2025 and after will have only 30 days after formation to make the filing. Filers must report changes to information for an entity within 30 days after a change. Willful failure to comply with the filing requirements can result in civil and criminal penalties, and those penalties can flow to individual senior officers of an entity.
We can assist in determining whether exemptions from the new filing requirement apply. The broadest exemption will be for entities that employ 21 or more full time employees, have a physical office and have annual gross receipts or sales of at least $5,000,000. Other exemptions exclude public companies, banks, insurers and certain individuals or entities that already report personal information, such as nonprofits, insurance brokers, accountants, venture fund advisors and securities advisors. Each entity, including subsidiaries and affiliates, must register or qualify for an exemption.
We recommend that each of our clients adopt provisions for company bylaws, operating agreements, limited partnership agreements and/or equity issuance agreements, as applicable, authorizing the collection and reporting of personal information. Amendments should be broad enough to allow the entity to make necessary FinCEN filings while still remaining in compliance with applicable privacy laws. The firm has forms of amendments ready for our clients’ use that also obligate beneficial owners to report any changes to required information so that the entity can inform FinCEN of any changes within the 30-day window to report any changes.
The provisions of the CTA are detailed and the registration process itself can be confusing, as evidenced by FinCEN’s own 57-page compliance guide. We are happy to provide advice to determine whether the filing requirement applies, to answer questions on how to file and to advise on any other questions relating to the new law.