Originally adopted as part of the 2021 National Defense Authorization Act, the new federal Corporate Transparency Act (CTA) will go into effect on January 1, 2024. An attempt to protect against terrorism and prevent illegal activities such as tax fraud or money laundering, the purpose of the CTA is to create a federal database of Beneficial Ownership Information.
Therefore, covered business entities will be required to disclose information about the company’s beneficial owners to the US Treasury’s Financial Crimes Enforcement Network (FinCEN). This new requirement shifts the burden of collecting such information from financial institutions to each individual reporting entity. A willful failure to comply with reporting requirements could lead to significant civil and criminal penalties.
Except for a few exemptions, such as governmental entities or those that are already highly regulated, all entities created by the filing of a document with the secretary of state are subject to the new mandate. This includes corporations, limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs), and business trusts. It also includes non-US entities who are registered to do business in the US and have filed with the secretary of state.
The company will be responsible for providing information including its name, principal place of business, the jurisdiction of the entity’s organization, and its taxpayer identification number. Its beneficial owners – those individuals who ultimately own or control the company – will be required to report Personal Identifiable Information (PII) as follows:
- Name, date of birth, address.
- Driver’s License or Passport Identification Number AND a copy of that document.
Also, for entities formed on or after January 1, 2024, similar reporting requirements will be required of persons who directly file the documents that create the company or are primarily responsible for directing/controlling the filing of said documents; referred to as “applicants.”
All existing businesses (other than inactive and exempt companies) must comply with filing requirements by January 1, 2025. Businesses formed after January 1, 2024, shall have thirty (30) days from the time of their formation or registration to comply.
Beginning January 1, 2024, to help simplify this process, companies and beneficial owners may obtain a FinCEN identifier by filing applicable information with FinCEN. A FinCEN identifier is a unique number that FinCEN will issue upon request after receiving required information. Collected information will not be made publicly available, but FinCEN is authorized to disclose PII under specific circumstances.
(This blog, prepared by Campanella Law Office, is for general informational purposes only and is not intended to convey specific legal advice, nor is it intended to create or constitute an attorney-client relationship.)