Federal Corporate Transparency Act

February 2024

On January 1, 2024, the rules implementing the Corporate Transparency Act (the “CTA” or “Act”) went into effect. The purpose of the CTA is to create a non-public database of information regarding certain corporations and limited liability companies – referred to as “reporting companies” – in order to prevent these companies from shielding money laundering, terrorism, and other illicit activities. The Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Treasury, maintains the database.

Under the CTA, a reporting company is:

(i) any domestic corporation, LLC, or other entity that is created by filing a document with a Secretary of State or similar office in the United States, or

(ii) a similar foreign entity that has registered to do business in the United States by filing a document with a Secretary of State or similar office in the United States.

Pursuant to this Act, any entity that is considered a “reporting company” under the rules must file certain information with the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Treasury. The filing requirements vary slightly depending on the creation date of the entity.

There are certain exemptions from this rule, the bulk of which apply to large and/or public entities. Reporting companies that are not otherwise exempt must file a Beneficial Ownership Information Report (“BOIR”) with FinCEN to provide information about the company and all “beneficial owners” of the company, defined in the Act as any individuals who, directly or indirectly, exercise substantial control over a reporting company and/or own or control at least 25% of the ownership interests of a reporting company. In some cases, the reporting company will also have to provide information regarding “company applicants” of the company – the individual person who filed the company formation or registration document, and, if applicable, the individual who directed the filing of the document.

A reporting company is required to report the following:

1. Information regarding the company itself, including the company’s legal name, any trade names or DBAs, current street address of its primary place of business, where the company was formed or registered, and the company’s Taxpayer Identification Number.

2. Information regarding the company’s beneficial owners, including the name, date of birth, residential address, identifying number from an acceptable identification document, such as a passport or U.S. driver's license, name of the issuing state or jurisdiction of such identification document, and a photograph of said identifying document for each beneficial owner of a reporting company.

It is not uncommon for a trust to own all or a percentage of a corporation, LLC, or similar entity. Even when owned by a trust, these entities are still considered reporting companies under the Act, which means that the trustees of a trust may be deemed beneficial owners of a reporting company. Trust beneficiaries and grantors may also be deemed beneficial owners of a reporting company held by the trust, depending on the terms of the trust and the ownership structure of the entity. The analysis to determine the beneficial owners of any such entity will have to be performed on a case-by-case basis. The trust itself will not be considered a beneficial owner.

3. Information regarding the company applicants of the company, including the name, date of birth, address, identifying number from an acceptable identification document, such as a passport or U.S. driver's license, and the name of the issuing state or jurisdiction of such identification document, for the individual person who filed the company formation or registration document. If the individual was directed by another individual to file said document, information for both individuals will need to be reported. Information pertaining to a company’s applicants is only required to be filed for reporting companies formed on or after January 1, 2024.

Any reporting company created or registered to do business before January 1, 2024 will have until January 1, 2025 to report the required information, and the company is not required to file information concerning the company applicants. Any reporting company created or registered to do business on or after January 1, 2024 will have 90 days from receipt of notice of the company’s creation or registration to file the required information, which does include information about the company’s applicants. In addition, a recording company will have to file an updated report within 30 days of any change to the required information about the company or any beneficial owners. A change includes anything from a new DBA for a reporting company, to a change in ownership, to a change of address or new identifying document for a beneficial owner.

The regulations impose steep penalties for (1) willfully providing or attempting to provide false beneficial ownership information, including false identity information or documents, and (2) willfully failing to report complete or updated beneficial ownership information. Penalties include a fine of $500 per day up to a maximum of $10,000 per incident and up to two years in prison. FinCEN has provided very little guidance on this matter and we do not know what standards they intend to utilize to determine willfulness.

Access to the secure filing portal and BOIR form preparation system can be found at https://www.fincen.gov/boi. The website also has an FAQ section and additional guidance to assist individuals in determining the status of an entity as well as the beneficial owners and company applicants. FinCEN does not charge a fee for filing a company’s BOIR.

New York LLC Transparency ACT

New York State Governor Kathy Hochul signed the New York LLC Transparency Act on December 23, 2023. The Act is set to go into effect on December 21, 2024. Under this Act, New York State will require similar filings to those required under the Federal CTA (see above) but the reporting entities will be limited to LLCs. The specifics of the reporting requirements and process have not yet been made available to the public. We anticipate a fair amount of further legislation and clarification surrounding this Act before it goes into effect.

The foregoing information is reflective of the information available to us as of the date of publication of this alert. Information and guidance concerning these new regulations is still evolving. We recommend that you review any entities with respect to which you feel you may be considered a beneficial owner under these new regulations and begin gathering any required information in anticipation of filing a report when necessary. If you believe you may be considered a beneficial owner of an entity and you would like to discuss this further, please do not hesitate to contact us or your accounting professionals.