By Alex Montoya

In January of 2021 Congress enacted the Corporate Transparency Act (CTA). The main purpose of the CTA is to protect the United States financial system from being used for
money laundering and other illicit activities.

Currently, when someone forms a business entity, they generally aren’t required to provide the names of the individuals who own or control the entity.

Starting in 2024, the CTA’s “Beneficial Ownership Reporting Rule” will require “reporting companies” to submit various reports with information pertaining to the entities themselves, their “beneficial owners,” and their “company applicants” with the Department of Treasury‘s Financial Crimes Enforcement Network, an agency known as FinCEN.

This information will be stored in a private database, where access will be limited mainly to government law enforcement agencies.

Are there exemptions to the rule?
The statute excludes 23 types of companies who are already heavily regulated to their ownership information is already disclosed. These include banks, insurance companies, accounting firms, and tax-exempt entities.

There’s also an exemption for large operating companies. These are companies with more than 20 full-time employees and more than $5 million in gross receipts or sales.

What companies will have to file a beneficial ownership information report?
A reporting company is a foreign or domestic corporation, limited liability company (LLC), or other business entity that is created by the filing of a document with the Secretary of State or similar office.

Most small businesses will fall into this category. FinCEN estimates that there will be 32.6 million reporting companies when the rule goes into effect, with 5 million being added each year.

When do I have to file?
All companies in existence now, or that are created and registered before January 1, 2024 have to file their initial report no later than January 1, 2025.

Companies that are created or registered on or after January 1, 2024 have to file their initial report within 30 calendar days of receiving notice of their creation or registration.

What information is included in the initial report?
Information is required about:
– The reporting company – this includes the company name, any trade or DBA names, the street address of its principal place of business, its jurisdiction of formation, or in the case of a foreign company the jurisdiction where first registered to do business, and its IRS Taxpayer Identification Number.

– Its beneficial owners (anyone owning 25% or more, or with substantial control of the company) and in the case of reporting companies created or registered on or after January 1, 2024,
information about their company applicant (anyone who first registers the company). The information to be reported is the individual’s full legal name, date of birth, current address, a unique identifying number from either an unexpired passport, state identification document, or driver’s license, and an image of that document.

After filing, if there’s a change in the information concerning the reporting company or its beneficial owners, the reporting company must file an updated report within 30 calendar days of the change. Reporting companies do not have to update information on company applicants.

If any of the information was inaccurate, when the report was filed, the reporting company has to file a corrected report within 30 calendar days after becoming aware of the inaccuracy.

The beneficial ownership reporting rule is the first of three rules intended to implement the CTA. In the coming months, FinCEN plans to release information related to the other two rules,
(1) Determining who may access the beneficial ownership information reported to FinCEN, and
(2) Revising FinCEN’s customer due diligence rule.

To learn more about the intricacies of the CTA, contact Alex Montoya at [email protected].