– The Corporate Transparency Act (CTA) requires certain business entities to file information on their beneficial owners with the Financial Crimes Enforcement Network (FinCEN).
– The information filed will not be publicly available, but FinCEN can disclose it to certain agencies and entities.
– Persons involved in the formation of reporting companies, referred to as “Company Applicants”, are also subject to disclosure and reporting requirements under the CTA. – The reporting requirements under the CTA come into effect on January 1, 2024, with compliance required by January 1, 2025 for existing business entities.
– The CTA was enacted because many states do not require or maintain entity ownership information, making it easier for illicit actors to hide their identities and move money through the U.S. financial system.
– A “Reporting Company” subject to the CTA is any corporation, limited liability company, or other entity formed or registered under the laws of a state or Indian tribe, or formed under the law of a foreign country and registered to do business in the United States.
– Types of entities exempt from the CTA reporting requirements include certain financial services companies, 501(c) organizations, publicly traded companies, public utilities, large private companies, subsidiaries of exempt entities, and “inactive entities” that meet specific criteria. – A “Beneficial Owner” is an individual who exercises substantial control over an entity or owns or controls not less than 25 percent of the ownership interests of the entity.
– Not all individuals are considered “Beneficial Owners,” including minors, nominees, employees, inheritance beneficiaries, and certain creditors.
– A “Company Applicant” is an individual who files the document that creates a domestic reporting company or first registers a foreign entity to do business in the United States.
– Reporting companies must provide information on each Beneficial Owner and Company Applicant, including full legal name, date of birth, current address, unique identifying number, and image of the identification document used for the unique identifying number.
– Reporting companies must also report their own legal name, address, state/jurisdiction of formation, and IRS taxpayer identification number.
– Exempt entities only need to report their name.
– Updates to reported information must be made within 30 days of any changes in Beneficial Ownership or cessation of exemption for exempt entities.
– The reported information can be accessed by federal agencies, state and local law enforcement, foreign law enforcement, financial institutions, and regulatory agencies.
– Penalties for non-compliance include civil penalties of up to $10,000 and possible imprisonment for willfully providing false information or failing to report complete or updated information.
– Companies can report the required information through the Beneficial Owner Information (BOI) E-Filing System developed by FinCEN. – Including contractual provisions in corporate documents such as representations, covenants, indemnification agreements, and consent for disclosure can help companies prepare for Compliance with the Corporate Transparency Act (CTA).
– Business entities and their owners should promptly start collecting the information required to be reported/disclosed for Reporting Companies and their Beneficial Owners and submit their BOI reports to comply with the CTA.
– Companies and owners with questions about the CTA’s applicability or exemption from reporting/disclosure requirements can contact Brennan Block at brennan.block@brownwinick.com or 515-242-2441 or Ellen Hames at ellen.hames@brownwinick.com or 515-242-2423.
https://www.brownwinick.com/insights/the-corporate-transparency-act-is-imminent-what-you-need-to-know
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