Many private companies will be subject to new federal reporting regulations at the start of 2024, risking civil or possibly criminal penalties for noncompliance. Under the Corporate Transparency Act (the Act), certain businesses must submit beneficial ownership reports through the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The legislation came about in an effort by Congress to prevent crime and terrorism through unregulated business activity.

Who is Affected?

The Act will apply as of January 1, 2024, to all private businesses that qualify as “Reporting Companies” which are not subject to other federal and state regulatory reporting requirements. For purposes of the Act, a Reporting Company may be a corporation, limited liability company, limited liability partnership, limited partnership, or other similar entity either (1) created by the filing of a document with a secretary of state or (2) formed under the laws of a foreign jurisdiction and registered to do business in the United States.

Entities that are currently subject to federal and state regulatory reporting requirements are exempt from the filing requirements of the Act. These regulated entities include banks, credit unions, publicly-traded companies, governmental entities, insurance companies, securities brokers, public utilities, certain investment advisors, venture capital fund advisors, and tax-exempt entities. Also exempt are entities that employ more than 20 full-time employees in the United States, filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales and has an operating presence at a physical office within the United States.

Who is a Beneficial Owner?

Anyone who, directly or indirectly, exercises substantial control over a Reporting Company or owns or controls at least 25% of the ownership interests in such company is a Beneficial Owner. If ownership interests cannot be accurately calculated, the Act specifies that a Beneficial Owner can be anyone possessing the ability to make important decisions on behalf of a company, such as a manager, officer, or director.

• Full legal name;
• Date of birth;
• Current residential or business address; and
• A unique identifying number from some form of government photo ID (e.g., a driver’s license or passport). Alternatively, a FinCEN identifier can be provided if no other form of government photo ID is available.

Reporting Companies formed on or after January 1, 2024, will have 30 days from the date of formation to submit that information to FinCEN about each Beneficial Owner and each applicant. An applicant could be any individual who either directly files the formation or foreign registration documents and is the primary FinCEN filer. Reporting Companies can have up to 2 applicants.

Consultation with corporate counsel is recommended well before the end of the year to determine potential compliance obligations and craft a filing plan.