The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021, effectively requiring most privately held companies to submit identification of their ownership (“Beneficial Owner Information” or “BOI”) to the U.S. Treasury. The stated purpose of the CTA is to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.” BOI will be reported to, and retained by, the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”), for law enforcement purposes. The BOI shall not be made public and will not be available pursuant to FOIA requests.
Absent the application of a few limited exceptions, privately owned corporations, limited liability companies, or any other business entity created by filing papers with a Secretary of State office in the U.S., or any foreign business registered to do business in any state in the U.S., must comply with the CTA. The official effective date of the CTA is January 1, 2024. Entities existing prior to January 1, 2024, will have the entire 2024 calendar year to comply with the CTA’s filing requirements. Entities created after January 1, 2024, will only have thirty (30) days from their creation date to comply.
Failure to comply with the CTA may result in the imposition of civil monetary penalties (accruing on a per-day basis) or in the instance of consistent willful violations, may result in criminal prosecution. Penalties can be levied against the company itself, against the Beneficial Owners, and against the “company applicant”, which is the person who filed the company’s formation documents with a Secretary of State.
Beneficial Owners are those individuals who directly or indirectly either exercise substantial control over a company or own at least twenty-five percent (25%) of the ownership interests in the company. Substantial control is generally defined to include senior officers, board members, or otherwise directs or influences important matters. These individuals will be subject to the CTA reporting requirements, and must report personal identification information, including their full legal name, date of birth, address, social security number or ITIN, and a state identification number, such as a driver’s license number. A scanned image of an identification document (driver’s license or passport) also must be included with the CTA filing.
An online, secure portal will facilitate compliance with the CTA. FinCEN has not yet finalized the required forms. Likewise, the portal remains under development. MLCL is building a dedicated team to assist our clients with these endeavors. After initial reporting, any future changes in Beneficial Owner Information will need to be reported to FinCEN.
Privately held companies and their Beneficial Owners should consult with legal counsel and begin preparing for CTA compliance now. This includes reviewing ownership ledgers and gathering basic information for reporting. Preparation also includes reviewing governing documents to ensure partners, co-shareholders, or members comply with the CTA’s cooperation provisions. Inactive companies should be reviewed for consideration of liquidation and dissolution prior to January 1, 2024. This will avoid incurring the time and expense associated with CTA compliance.
To discuss the Corporate Transparency Act and how it will impact your business, reach out to your McCarthy Lebit attorney.
