The U.S. Corporate Transparency Act ("CTA") requires certain privately owned entities to report information about the people who control them (their "beneficial owners") to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury ("FinCEN"). The CTA rules generally apply to privately owned limited liability companies (LLCs), limited partnerships (LPs), corporations and other entities created by filing a document with a secretary of state or similar officer. The CTA contains a number of exemptions from the reporting requirements which may apply in certain cases.
FinCEN has started accepting beneficial ownership information reports and applications to obtain FinCEN identifiers. Reporting companies can file their beneficial ownership information reports here. Beneficial owners and company applicants can apply for FinCEN identifiers here.
Below are a few key deadlines for reporting companies:
- Pre-2024 Entities. Domestic reporting companies formed (or foreign reporting companies registering to do business in the U.S. for the first time) prior to January 1, 2024 will have to provide the required information to FinCEN by January 1, 2025.
- 2024 Entities. Domestic reporting companies formed (or foreign reporting companies registering to do business in the U.S. for the first time) during calendar year 2024 will have to provide the required information to FinCEN within 90 days of formation (or registration).
- Post-2024 Entities. Reporting companies formed on or after January 1, 2025 will be required to report within 30 days of formation (or registration).
- Amendments.
Reporting companies are required to file an updated report within 30 calendar days after the date on which there is any change with respect to information previously submitted to FinCEN (other than changes with respect to a company applicant (unless the company applicant information was incorrect in the initial report)). A reporting company generally should also file an updated report if it becomes qualified for an exemption from the CTA's reporting requirements.
Special Consideration for Private Funds – In the case of a private fund entity that is not exempt from reporting, special attention must be paid to changes in its beneficial owners. Fund investors possess an ownership share in the fund, and therefore the contributions and redemptions made by investors alter the fund's beneficial ownership. When investor contributions or redemptions lead to any of the fund's owners becoming or ceasing to be a 25% or greater owner of the fund, the fund must file an updated report with FinCEN within 30 days.
Penalties for willful failure to provide complete or updated beneficial ownership information or willfully providing (or attempting to provide) false or fraudulent beneficial ownership information can include up to two years in prison and up to $10,000 in fines. The penalties may apply to a reporting company, its senior officers or any individual or other entity who directly or indirectly causes a violation. The language of the final rules and accompanying guidance indicate that this would include anyone who willfully provides false or fraudulent information to a reporting company for the purposes of filing a report under the CTA. Therefore, it appears that in some cases, there may be multiple parties subject to potential liability for failing to meet the CTA's reporting requirements. The CTA does not provide specific penalties for negligent or unintentional violations.
There is ongoing litigation intended to void the CTA's filing requirements but for now, the CTA is still applicable against most of the entities intended to be subject to this regime. We recommend that clients comply with all applicable reporting deadlines to avoid any potential penalties for failure to file.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.