In pursuing a fair and accountable business landscape, the Corporate Transparency Act (“CTA”) stands as a monumental stride towards transparency and legitimacy. This transformative piece of legislation, effective as of January 1, 2024, introduces crucial reporting requirements that aim to revolutionize corporate practices, foster ethical conduct, and mitigate the misuse of anonymous shell companies.
The Financial Crimes Enforcement Network (“FinCEN”) is the regulatory body empowered with enforcing the CTA. One of the primary goals of the CTA is to curb money laundering, fraud, and other illicit activities facilitated by anonymous shell companies. To accomplish this, FinCEN requires the Beneficial Owners of all “Reporting Companies,” which are corporations, limited liability companies, or other similar entities that are “created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe … or formed under the law of a foreign country and registered to do business in the United States by the filing of a document with the secretary of state or a similar office under the laws of a State or Indian Tribe,” to submit Beneficial Owner Reports.
“Beneficial Owners” of Reporting Companies include any individual who, directly or indirectly, either (1) exercises substantial control over such Reporting Company or (2) owns or controls at least 25 percent of the ownership interests of such Reporting Company.
“Beneficial Ownership Reports,” at a minimum, require the following information:
Beneficial Owners must file their Beneficial Ownership Report (as defined below) with FinCEN according to the following deadlines:
1. Reporting Companies that were formed or registered prior to January 1, 2024, must file on or before December 31, 2024.
2. Reporting Companies formed or registered on or after January 1, 2024, but before January 1, 2025, will have 90 calendar days after receiving notice of their creation or registration to file.
3. Reporting Companies formed or registered after January 1, 2025, will have 30 calendar days after receiving notice of their creation or registration to file.
The penalty for not filing your Beneficial Ownership Report by the deadline above is $500 per day for each day following the applicable deadline, up to $10,000, and a potential criminal penalty of not more than two years in prison.
What about individuals who are Beneficial Owners of multiple entities? To ease the burden of continued CTA reporting, FinCEN has created FinCEN IDs. Instead of filing a Beneficial Ownership Report for each entity in which an individual is a Beneficial Owner, a Beneficial Owner can submit the information required in the Beneficial Ownership Report once and request a FinCEN ID. After receiving a FinCEN ID, an individual or Reporting Company filling out a Beneficial Ownership Report can report the FinCEN ID instead of the Beneficial Ownership Report, saving the reporter time and energy. An individual can request a FinCEN ID by filling out the application on the FinCEN ID website or by checking a box on the Beneficial Ownership Report upon submission. Reporting Companies can receive a FinCEN ID only by checking the appropriate box upon submission; as with all other CTA reporting obligations, the information registered to a FinCEN ID must be updated or corrected should circumstances change. These updates and corrections must be made no later than 30 days after the date on which the change occurred. Individuals can update their FinCEN ID information through the FinCEN ID application portal. Still, Reporting Companies must file an updated or corrected Beneficial Ownership Report to update their FinCEN ID information. FinCEN is currently assessing procedures to deactivate FinCEN IDs to release FinCEN ID holders from their obligation to correct and update information. Still, FinCEN has not established such deactivation protocols yet.
If there is any question that you may be considered a Beneficial Owner or that your entity may be considered a Reporting Company, contact RR&A today to ensure your compliance and avoid the CTA’s harsh penalties.
Interested in forming your own entity? Download RR&A’s Business Formation Questionnaire to make the process easier.
Miranda is an Associate at R. Reese & Associates and part of the Transactions and Corporate teams. Miranda’s practice is primarily focused on transactions from due diligence to post-closing and everything in between. She has also had the opportunity to gain a wealth of experience drafting and negotiating commercial contracts as well as handling corporate and general business practice matters. To learn more about Miranda, visit her attorney page.
Disclaimer: The information and material on this website is general information about our practice and firm. This information does not offer specific legal advice and the use of this information does not create an attorney-client relationship with RR&A or any of its attorneys. The information on this website should not be used for legal advice, and persons should not act upon the information on this website without engaging professional legal counsel.
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