The Corporate Transparency Act (CTA) requires a “Reporting Company” to report to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) personal identifying information about individuals who are “Beneficial Owners” and “Company Applicants”. FinCEN will maintain such information on a secure, non-public database for use by government authorities, certain financial institutions, and financial regulators.
What Is a Reporting Company?
A “Reporting Company” is a corporation, limited liability company, or similar entity that is:
- Domestic: Created by filing a document with a secretary of state or a similar office under the law of a State or Indian Tribe.
- Foreign: Formed under the law of a foreign country and is registered to do business in the U.S. by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.
There are 23 exemptions that allow entities not to be deemed a “Reporting Company” that is subject to these requirements Below is a short description for each exemption; however please note that there are additional requirements that must be satisfied for each exemption.
|
No. |
Exemption Short Description |
No. |
Exemption Short Description |
|
1 |
Securities reporting issuer |
13 |
State-licensed insurance producer |
|
2 |
Governmental authority |
14 |
Commodity Exchange Act registered entity |
|
3 |
Bank |
15 |
Accounting firm |
|
4 |
Credit union |
16 |
Public utility |
|
5 |
Depository institution holding company |
17 |
Financial market utility |
|
6 |
Money services business |
18 |
Pooled investment vehicle |
|
7 |
Broker or dealer in securities |
19 |
Tax-exempt entity |
|
8 |
Securities exchange or clearing agency |
20 |
Entity assisting a tax-exempt entity |
|
9 |
Other Exchange Act registered entity |
21 |
Large operating company |
|
10 |
Investment company or investment adviser |
22 |
Subsidiary of certain exempt entities |
|
11 |
Venture capital fund adviser |
23 |
Inactive entity |
|
12 |
Insurance company |
Who is a Beneficial Owner?
A “Beneficial Owner” is any individual who either directly or indirectly: (1) exercises “Substantial Control” over the Reporting Company; or (2) owns or controls at least 25% of the Reporting Company’s “Ownership Interests”.
|
Substantial Control |
Ownership Interest |
|
Senior Officer: Holds the position or exercises the authority of a President, CFO, General Counsel, CEO, COO, or an officer who performs a similar function. Appointment or Removal Authority: Has the ability to appoint or remove a “Senior Officer” or a majority of the board of directors or a similar body. Important Decision-Maker: Directs, determines, or has a substantial influence over important decisions made by the Reporting Company. Catch All: Any other form of substantial control over the Reporting Company. |
Equity, Stock, or Voting Rights: Any interest classified as stock or anything similar, regardless of whether it confers voting power or voting rights, and even if the interest is transferable. Capital or Profit Interest: Any interest in the assets or profits of a company organized as an LLC. Convertible Instruments: Any instrument convertible into equity, stock, or voting rights or capital or profit interest, whether or not anything needs to be paid to exercise the conversion. The related items are also ownership interests: (a) any future on any convertible instrument; (b) any warrant or right to purchase, sell, or subscribe to a share or interest in equity stock, or voting rights or capital or profit interest, even if such warrant or right is a debt. Option or Privilege: Any put, call, straddle, or other option or privilege of buying or selling equity stock, or voting rights or capital or profit interest, or convertible instruments. Except if the option or privilege is created and held by others without the knowledge or involvement of the Reporting Company. Catch All: Any other instrument, contact, arrangement, understanding, relationship, or mechanism used to establish ownership. |
*Exceptions to “Beneficial Owner” definition: 1) minor child; 2) nominee; 3) intermediary, custodian, agent: 4) employee (other than Senior Officer); 5) inheritor (future interest through a right of inheritance); and 6) creditor.
Who is a Company Applicant?
A Reporting Company will have, at most, two “Company Applicants,” who fall into two different categories:
- Category 1: The individual who directly files with the State or Indian Tribe either (a) the document creating the domestic Reporting Company or (b) the application to register a foreign Reporting Company.
- Category 2: The individual who was primarily responsible for directing or controlling the filing of the creation or first registration document.
What Are the Reporting Obligations of a Reporting Company to FinCEN?
|
Date Reporting Company Created/Registered |
When the Reporting Company Must Provide the Information |
Reporting Company Must Provide Information About: |
|
Before 2024 |
No later than January 1, 2025 |
(1) Reporting Company (2) Each Beneficial Owner |
|
In 2024 |
Within 90 days of the earlier of (1) actual notice of creation/registration or (2) pubic notice of creation/registration |
(1) Reporting Company (2) Each Beneficial Owner (3) Company Applicant(s) |
|
In 2025 and thereafter |
Within 30 days of the earlier of (1) actual notice of creation/registration or (2) pubic notice of creation/registration |
(1) Reporting Company (2) Each Beneficial Owner (3) Company Applicant(s) |
If required above, the following information must be reported electronically to FinCEN using its secure filing system (https://www.fincen.gov/boi):
- Reporting Company: (1) full legal name; (2) trade name or “doing business as” (DBA) name; (3) complete current address (principal place of business in U.S., or, if the company’s principal place of business is not in the U.S., the primary location in the U.S. where the company conducts business); (4) State, Tribal, or foreign jurisdiction of formation; (5) for a foreign reporting company only, State or Tribal jurisdiction of first registration; and (6) IRS Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN) (if a foreign reporting company has not been issued a TIN, report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction).
- Each Beneficial Owner: (1) full legal name; (2) date of birth; (3) complete current address (must report individual’s street address); (4) unique identification number, issuing jurisdiction, and an image of one of the following non-expired documents (no other forms of ID are allowed): (a) U.S. passport, (b) state driver’s license, (c) identification document issued by a state, local government, or tribe, or (d) if an individual does not have any of the previous documents, a foreign passport.
- Company Applicant(s): Same information as a Beneficial Owner. However, if a Company Applicant forms or registers a company in the course of its business, report its business street address.
- FinCEN Identifier: A unique identification number issued by FinCEN to an individual upon request, which can be used by a Reporting Company in lieu of a Beneficial Owner’s or Company Applicant’s personal identifiable information (PII).
Updated Report: Within 30 calendar days after a change of previously reported information occurs for a Reporting Company or a Beneficial Owner.
FinCEN Identifier: Individuals with FinCEN Identifiers must update FinCEN of any change in PII within 30 calendar days after a change occurs.
Are There Penalties for Non-Compliance?
Yes, there are both civil and criminal penalties for a willful failure to (1) report, (2) update beneficial ownership information, and/or (3) correct inaccurate beneficial ownership information.
- Civil Penalties: $500 per day (with no maximum amount).
- Criminal Penalties: $10,000 fine, imprisonment for no more than 2 years, or both
This article contains informational summaries of actual legal matters, regulations, and opinions and should therefore only be used for informational purposes. It is not meant to be and should not be construed as legal advice. Clients with specific questions should and are welcome to contact one of the attorneys at PLDR Law.
