For a long time privately owned companies in the U.S. have enjoyed a high degree of privacy particularly as it concerns the identity of their beneficial owners. However, this will change starting January 1, 2024, when the Corporate Transparency Act, enacted by Congress in 2020, comes into the effect. The CTA affects all non-exempt corporations, limited liability companies, and any other type of entity created by a filing with the Secretary of State. These entities will be required to disclose certain information regarding any person that holds a 25% ownership in the company or that exercises directly or indirectly “substantial control” over the company. The CTA also applies to foreign companies that register to do business in the U.S. through a filing with the Secretary of State. Trusts, Sole Proprietorships and General Partnerships may be excluded depending on whether the state of formation requires or not a filing with the Secretary of State.
The information will be reported to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and will include the individual’s full legal name, date of birth, current residential or business street address, unique identifying number from an acceptable identification document (e.g., a passport). The information reported will not be public.
Entities that are exempt from reporting include, among others, publicly traded companies, banks, credit unions, certain investment vehicles operated by investment advisors and public utilities. Also exempt are companies that meet all the following requirements (1) more than 20 employees, (2) $5 million in U.S. sourced revenue, and (3) operating presence at physical office in the U.S.
Companies formed on or after January 1, 2024, must report the beneficial owner’s information within 30 days after their formation or registration. Companies that were formed or registered before January 1, 2024, will have until January 1, 2025, to report their beneficial owner’s information.
Penalties for willful failure to comply with the CTA’s reporting requirements include monetary fines of up to $500 per day for violation not remedied and/or criminal penalties of up to $10,000 and/or imprisonment of up to two years.
If you are uncertain on whether these reporting obligations apply to you contact us and we will help you make this assessment and if required prepare any filings before the anticipated deadline.
