Corporate Transparency Act

A beneficial owner of a reporting company is an individual who, directly or indirectly, exercises substantial control over a reporting company. Examples of beneficial owners include:

• Individuals who own more than 25% of a company’s ownership interests or shares
• Individuals who have voting control over a company
• Individuals who control a company through trusts, partnerships, or other legal entities
• Individuals who have the power to direct or control a company’s management
• Individuals who exercise substantial influence over a company’s financial decisions

It is important to note that beneficial owners can be individuals not publicly known as company owners.

Review FAQs for beneficial owner information reporting.

The disclosure reports, which will be filed electronically using the BSA E-Filing System, will need to include the following information about the reporting company’s beneficial owners:

• Full name
• Date of birth
• Current address
• A unique identifying number, such as a driver’s license number or passport number

As of October 2023, FinCEN has issued proposed regulations to implement the Corporate Transparency Act, but the final regulations have yet to be published. The proposed regulations provide more detail about reporting requirements, including the format of the disclosure reports and the types of information that must be included.

The Corporate Transparency Act will become effective on January 1, 2024; therefore, you cannot file until after the effective date.

Under the proposed rules, reporting companies must file their initial disclosure report within 30 days of being registered or formed to do business in the United States. Reporting companies must also file an updated Corporate Transparency Act disclosure report within 30 days of any changes to their beneficial ownership information.

Please note, starting January 1, 2024, any new entities formed after 2023 must file their initial reports within 30 days of formation. Entities in existence prior to January 1, 2024, must file their initial reports by January 1, 2025.

A reporting company is:

• A domestic corporation, LLC, including a single member LLC, or an entity created by filing documents with a Secretary of State’s office or similar office (e.g., limited partnerships, limited liability partnerships, and business trusts in most states); and
• A foreign corporation, LLC, or other entity formed under the law of another country and registered to do business in any state or tribal jurisdiction by the filing of a document with a Secretary of State or similar office. This includes documents filed with a Secretary of State (or similar office) for Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other U.S. commonwealth, territory, or possession. (FinCEN FAQ #7)
  (Treas. Regs. §1010.380(c))

The vast majority of small and medium-sized businesses that form with a state’s Secretary of State’s office will be subject to the Corporate Transparency Act’s reporting requirements to FinCEN.

The reporting rules do not currently apply to general partnerships or most trusts, large operating companies, or highly regulated companies. There are over 23 exemptions, a few of which include:

• Publicly traded companies
• Certain types of financial institutions
• Nonprofit organizations
• Government entities

Businesses should be aware of the Corporate Transparency Act’s requirements and exemptions. If you are unsure whether your business is exempt from the reporting requirements, consult a Windes FinCEN expert advisor.

The potential penalties for non-compliance with the Corporate Transparency Act are significant. Failing to file a report or filing an incomplete or inaccurate report can result in civil penalties of $500 per day, with no cap. If the failure to report is willful, or if the report knowingly includes erroneous information, individuals may also face criminal penalties of up to $10,000 and/or two years imprisonment.

In addition to the penalties noted above, companies that fail to comply may also face other negative consequences, such as difficulty obtaining financing, increased risk of regulatory audits and investigations, reputational damage, and difficulty attracting and retaining customers and employees.

Companies should ensure compliance with the Corporate Transparency Act by developing a process for identifying and reporting their beneficial owners. The Windes Client Services Team is ready to help you navigate these new regulations.

There are currently no Corporate Transparency Act equivalent state filings that are required. However, some states are considering enacting beneficial ownership reporting laws.

Businesses should monitor developments in their state to determine whether they may be subject to any additional beneficial ownership reporting requirements in the future.

Please note, even if a state does not have a Corporate Transparency Act equivalent filing requirement, businesses may still be required to disclose beneficial ownership information to the state for other purposes.

The Windes Client Services Team can help you navigate state disclosure requirements. Contact us today.