By Sabrina Johnson
January 17, 2023
Companies doing business in the United States should be aware of the new Corporate Transparency Act (“CTA”) passed by Congress. The CTA requires most businesses to provide information regarding the identities of their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). The CTA regulations have been finalized, and take effect on January 1, 2024. FinCEN will begin accepting filings in 2024. Below is a brief summary of the final regulations and reporting requirements.
Any corporation, limited liability company, or entity created by filing a document with the secretary of state (or similar office) is subject to the new CTA reporting requirements. The only entities exempted are those that are already highly regulated, such as banks, financial institutions, credit unions, and insurance companies. Also exempt are “large operating companies” (those which employ more than 20 full time employees in the United States, report more than $5 million in annual gross revenue, and have an operating presence at a physical office in the United States), and those owned by exempt companies.
Any entity not exempt (the “reporting company”) must submit an initial report, containing information such as the full legal name of the reporting company; any trade name or ‘‘doing business as’’ name of the reporting company; the complete street address of the company’s principal place of business in the United States; the jurisdiction of formation of the company; and the company’s Taxpayer Identification Number (TIN) or Employer Identification Number (EIN). Given the nature of the entities created for most real estate transactions, most will not be exempt and will be required to report under the CTA.
In addition to providing company information, each reporting company must identify all of its “beneficial owners” and provide certain detailed information for each. Each reporting company must identify at least one beneficial owner. A “beneficial owner” is an individual who, either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25 percent of the ownership interests of the reporting company.
The Act also requires any reporting company to submit information regarding its “company applicant.” The company applicant is the individual who directly files the document that creates the reporting company. Company applicants will need to submit the same information as beneficial owners, except they may provide the company’s business address instead of their personal residential address.
Fortunately, this portion of the Act does not apply retroactively. Only reporting companies formed on or after January 1, 2024 will need to report their company applicant’s information. Companies formed before January 1, 2024 do not need to report the information of the company applicant.
FinCEN Identifier – A Convenience
Reporting companies and individuals can obtain “FinCEN identifiers” by submitting to FinCEN an application containing the same information they would submit in an initial report. Reporting companies can then use individuals’ FinCEN identifier on future reports in lieu of providing their personal information.
For all reporting companies created before January 1, 2024, they must file their reports no later than January 1, 2025. For any reporting company created on or after January 1, 2024, the company must file its report within 30 calendar days after the earlier of: (1) the date on which it receives actual notice that its creation has become effective; or (2) the date on which a secretary of state or similar office first provides public notice that the reporting company has been created.
If any of the required reported information changes for a reporting company, the company must file an updated report within 30 calendar days after the date on which the change occurs. This includes any change in beneficial owner(s), or information reported for any beneficial owner.
The Act makes it unlawful to “willfully” fail to report complete information, or to provide false information. A violation can result in a penalty of up to $500.00 per day, and/or a fine of up to $10,000.00.
Hecht Solberg is prepared to help companies and individuals navigate the reporting process. For assistance with the reporting requirements, or with any questions, please contact us at (619) 239-3444.