08/01/24

US: Corporate Transparency Act (“CTA”) becomes effective US law

As published on: record-bee.com, Monday 8 January, 2024. 

On Jan. 1, 2024, the Corporate Transparency Act (“CTA”) became effective US law. The CTA requires many domestic businesses and foreign businesses doing business in the US to report Beneficial Owner Information (“BOI”) to the Financial Crimes Enforcement Network (“FinCen”) regarding the company itself and its beneficial owners, i.e., the individuals who ultimately own or control the company.

FinCen’s collects the BOI to combat various criminal activities, including money laundering and terrorism, that involve businesses, by sharing the BOI information with law enforcement authorities.

Explaining the CTA involves five Major areas: (1) Reporting Companies; (2) Beneficial Owners whose information is provided; (3) BOI information provided; (4) how to report; and (5) when to report.

“A reporting company is (1) any corporation, limited liability company, or other similar entity that was created in the United States by the filing of a document with a secretary of state or similar office (in which case it is a domestic reporting company), or any legal entity that has been registered to do business [in the United States].” There are important exceptions for numerous types of businesses. The point of the CTA is to get information about smaller businesses that are not otherwise reporting information about themselves. Thus, small LLC’s and corporations are required to report.

Beneficial Owners include: (1) “any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company; and (2) “an individual who exercises substantial control over a reporting company if the individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the reporting company.”

A trustee and other persons involved with a trust can be beneficial owners of an LLC or corporation if the trust owns or controls at least 25% of the ownership interest in the reporting company. That is, the trustee, some beneficiaries and the settlor of the trust may all be beneficial owners who must report information to FinCen.

Each BOI report must include information about the Reporting Company and its Beneficial Owners. “The beneficial owners must report to FinCEN their name, date of birth, address, and unique identifier number from a recognized issuing jurisdiction and a photo of that document. If an individual decides to file their information to FinCEN directly, they may be issued a “FinCEN identifier” which can be provided on a BOI report instead of the required information.” The use of a FinCen identifier number by business owners is a big step towards streamlining the process by making the owners responsible for directly reporting their information to FinCen.

A reporting company is expected to report the BOI information to FinCen by means of a secure portal on FinCen’s website. The portal will begin accepting BOI reports on January 1, 2024.

Existing businesses have one year to file their first BOI report. Businesses that are established between Jan. 1, 2024 and Jan. 1, 2025, have ninety (90) days to file their report (measured from the date they were incorporated or allowed to do business); and business established, or allowed to do business in the US after Jan. 1, 2025, have thirty (30) days to file their BOI report. BOI reports must be updated as necessary. However, if a business owner has a FinCEN number then the burden is directly on the owner to update his or her information.

Tags

Corporate Transparency Act US US law Regulation Transparency