The Corporate Transparency Act (codified as 31 U.S.C. §5336) (“CTA”) imposes reporting requirements on certain entities formed and existing prior to January 1, 2024 which are due on or before January 1, 2025. Specifically, existing entities must file an “initial report” with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) disclosing the “beneficial owners” of the company and other information about the company. The CTA covers both entities created within a state or tribal territory of the United States as well as foreign entities registered within a state or tribal territory of the United States. Some exceptions or limitations apply.
A “beneficial owner” is an owner who exercises substantial control over the reporting company, or who owns or controls at least 25% of the company. 31 U.S.C. §5330(a)(3). Determining the individuals who meet the definition of “beneficial owners” is a fact-intensive analysis which considers the individual’s job title, ownership interest, and decision-making authority. For example, “substantial control” may include a person who possesses a senior officer job title (e.g., President, CEO, COO, CFO, or General Counsel), any person who performs similar functions to a senior officers, any person who has authority to appoint or remove a senior officer or a majority of the board of directors, and any important decision-maker who directs, determines, or has substantial influence over the decisions made by the reporting company. Important decisions about a company’s business may include the ability to determine the nature, scope, and attributes of the business, or decisions about the business’ structure, including reorganization, dissolution, merger, or amending the governing documents of the company (e.g., articles of incorporation, bylaws, or major policies or procedures). Important decisions about a company’s finances may include the ability to direct the sale, lease, mortgage, or other transfer of any principal assets, make major expenditures or investments, issue equity, incur significant debt, approve the operating budget, or determine compensation schemes and incentive programs for senior officers.
To determine whether a person meets the 25% ownership threshold, any incidents of ownership must be considered, including equity, stock, voting rights, a capital or profit interest, instruments convertible to such rights or interest, or any option or privilege which can create such rights or interest. Finally, both categories of “beneficial owner” also include a “catch-all” allowing the government to consider any other relevant facts needed to determine whether a person is a “beneficial owner” of the reporting company.
In the report, each beneficial owner must provide his or her legal name, birth date, home address, identifying number (e.g., driver’s license, state identification card, passport, etc.), and a copy of the photo identification document. 31 U.S.C. §5336(b); 31 C.F.R. §1010.380(b). The photo I.D. must be current (non-expired).
In addition to the “initial report” due by January 1, 2025, entities must also file “updated reports” as needed in the event any information on the report changes, such as a change to the previously-reported beneficial owner information. Updated reports are due within 30 calendar days after the change occurs. 31 C.F.R. §1010.380(a)(2)(i). Additionally, if any information reported on a filed report was inaccurate when filed and remains inaccurate, the company must file a “corrected report” within 30 days after the date the company became aware of or had reason to know of the inaccuracy. 31 C.F.R. §1010380(a)(3).
Given the complexity of determining the “beneficial owners” of a covered company, analyzing whether an exemption or limitation applies, and filing an accurate and complete report, Gensburg Calandriello & Kanter, P.C. is available to analyze a company’s reporting requirements and assist with the filing of an initial, updated, or corrected Beneficial Owner Information Report. Please contact us with questions about how the CTA applies to your company or to assist with any other legal business needs.
Sandra Mertens
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