The Corporate Transparency Act: What Businesses Need to Know About New Ownership Reporting Requirements in 2024

By: Bryce W. Morrison

In Brief

Effective January 1, 2024, the Corporate Transparency Act requires every entity formed or registered to do business in the United States, whether already existing or newly formed, to file a report with the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury listing its beneficial owners. Below is what you need to know about this new law and how it affects your business.

Who Reports?

The Corporate Transparency Act requires a “reporting company” to file a report. A “reporting company” is any corporation, limited liability company, partnership, or other similar entity formed in the United States. Entities formed in foreign countries are also required to report if they are registered to do business in the United States.

There is a lengthy list of entities that are exempt from the definition of a “reporting company” and they are not required to file a beneficial owner report. Generally speaking, exempt entities are those subject to other forms of regulation (such as those registered under the Securities Exchange Act of 1934 or public charities) and large operating companies.

If you have questions about whether your business is required to file a report under the Corporate Transparency Act, our business team can help you.

What is Reported?

A beneficial owner of a reporting company is an individual who, directly or indirectly:

(i) exercises substantial control over the reporting company, or

(ii) owns or controls 25% of the ownership interests of the reporting company.

These individuals may be the immediate owners of a corporation or limited liability company, or they may be individuals that are several layers up on the organizational chart. These individuals include senior officers of an entity, such as the entity’s President or Chief Financial Officer. Reporting companies are required to review their organizational charts to identify the individuals who are considered beneficial owners under this new law.

The beneficial owner report must contain the following information for each individual who is a beneficial owner:

• Full legal name
• Date of birth
• Current residential street address, and
• A unique identifying number from an acceptable identification document.

There is a limited set of documents that the law considers acceptable identification documents, namely: a nonexpired US passport, a nonexpired state identification card, a nonexpired state driver’s license, and a nonexpired foreign passport (only if the individual does not have the other documents). A beneficial owner can apply for a FinCEN number, which is a unique identifying number. If an owner is given a FinCEN number, the FinCEN number can be used instead of reporting the beneficial owner’s personal information.

The report must also contain information about the “company applicant”. The company applicant is any individual who files an application to form the entity and any individual who supervises the filing. This requirement encompasses the service professionals (such as attorneys) who assist in forming business entities.

When is it Reported?

Generally speaking, the report has to be filed with FinCEN within 30 days of forming an entity. An updated report must be filed within 30 days of any change in the information contained in the original report.

Entities existing on or before December 31, 2023, have one year to file a report. For new entities formed on or after January 1, 2024, the report must be filed within 90 days of formation. For new entities formed on or after January 1, 2025, the report must be filed within 30 days of formation.

If you have any questions about when you need to file a report, we can help.

What are the Consequences for Not Reporting?

Under the Corporate Transparency Act, there are civil and criminal penalties for providing false or fraudulent beneficial ownership information and for willfully failing to report complete or updated beneficial ownership information. The penalties include a civil penalty of $500 per day for each day that the violation goes unremedied and criminal penalties of a fine of up to $10,000 and imprisonment for up to 2 years.

How is the Reported Information Used?

The reported information is stored by FinCEN in a secure databank. Federal and state agencies may request access to the reported information for purposes of national security, intelligence, law enforcement, regulation, and tax administration. Federal agencies may also access the reported information on behalf of a law enforcement agency, prosecutor, or judge of a foreign country. Financial institutions may access the reported information with the consent of the reporting company for the purposes of customer due diligence.

In Conclusion

The requirement to report beneficial owner information to the federal government is a significant change in the law. It is not presently part of the usual practice of forming and operating a new business entity. As such, businesses and their professional advisors will need to change their procedures to ensure compliance with these new requirements.

For further legal counsel on this matter, we’re here to help. Contact Business Law Attorney Bryce Morrison at bmorrison@bernsteinshur.com.