Reporting Requirements Take Effect on Jan. 1, 2024
Entities should prepare to comply with a new law requiring entities to report beneficial ownership information to the U.S. government
Who has to report?
- “Reporting companies” are required to report
- Reporting companies include corporations, LLCs and entities created or registered to do business in the U.S. by filing a document with a secretary of state (or similar office)
- Includes U.S. and non-U.S. entities
- Likely includes LPs, LLPs and other types of entities, depending on state requirements
Who is exempt?
- The CTA provides 23 categories of exemptions
- In general, the exemptions cover highly regulated entities and other “low-risk” entities (e.g., large operating companies with a physical presence in the U.S., 501(c) nonprofit organizations, charitable trusts, split-interest trusts, publicly traded companies, SEC-registered companies, insurance companies, banks, etc.)
- Most privately held entities used for estate, investment, real estate, tax, privacy or other personal planning generally will not be exempt
Who is a beneficial owner?
- Any individual who, directly or indirectly, exercises substantial control over the reporting company; substantial control includes:
- (1) service as a senior officer, (2) authority to appoint or remove a senior officer or a majority of the board (or similar body), (3) directing, determining or having substantial influence over important company decisions, and (4) any other form of substantial control
- Any individual who, directly or indirectly, owns or controls at least 25% of the ownership interests in the reporting company
- Certain individuals are excluded from the definition of beneficial owner, including minors
Who must be reported if a reporting company is owned through a trust?
- If an ownership interest in a reporting company is held through a trust, each of the individuals listed below is deemed to have an ownership interest in that reporting company:
- A grantor/settlor who has the right to revoke the trust or otherwise withdraw the trust’s assets
- A beneficiary who is the sole permissible recipient of the trust’s income and principal
- A beneficiary who has the right to demand a distribution of or withdraw substantially all of the trust’s assets
- A trustee of the trust
- Any other individual who has the authority to dispose of trust assets
- Depending on the specific circumstances, other individuals may also be considered to own or control ownership interests through a trust (e.g., trust protectors, distribution or investment advisors of trusts, or beneficiaries of trusts with multiple beneficiaries)
Does a reporting company have to report its applicants?
- A reporting company is only required to report applicants if it is created or registered in/after 2024
- A reporting company will have either one or two applicants: (1) the individual who directly files the document that creates or registers the reporting company, and (2) the individual who is primarily responsible for directing or controlling the filing of the document, if more than one individual is involved in the filing of the document
What information does a reporting company need to report?
- For beneficial owners (and applicants, if required) provide: full legal name, birth date, current street address, an ID number and an image of the ID document
- For reporting companies provide: legal name and any trade or DBA, address, jurisdiction of formation, jurisdiction where the company first registered to do business in the U.S. (in the case of a non-U.S. reporting company) and the company’s tax ID number
When and how should a reporting company file its initial report?
- Reporting obligations take effect on Jan. 1, 2024
- Entities formed/registered before 2024 must file an initial report no later than Jan. 1, 2025
- Entities formed/registered in 2024 must file an initial report within 90 days of the date the entity is formed/registered
- Entities formed/registered on or after Jan. 1, 2025, must file an initial report within 30 days of the date the entity is formed/registered
- If there are any updates or corrections to beneficial ownership information, updated/corrected reports must be filed within 30 days
- FinCEN will accept reports electronically beginning Jan. 1, 2024
Will the reported information be publicly available?
- No, the database will not be available to the public
Who will have access to the information?
- All information reported under the CTA will be stored in a secure private database maintained by FinCEN
- The Treasury Department has broad authorization to use the information, including for tax purposes
- The information will also be available in limited situations upon appropriate request by:
- U.S. federal law enforcement agencies (including requests made by U.S. federal authorities on behalf of non-U.S. law enforcement)
- Certain federal agencies
- State and local law enforcement with court authorization
- Financial institutions that have the consent of the reporting company
What are the potential penalties if I do not comply?
- Civil and criminal penalties may apply to willful reporting violations (including failing to file or providing false beneficial ownership information)
- Penalties may apply to reporting companies as well as to responsible individuals and other entities