01/08/24
Corporate Transparency Act Of 2024
As of January 1, 2024, Corporate Transparency Act went into effect which requires companies in the U.S. to disclose owners' information to the U.S. Department of the Treasury. In order to enforce the CTA, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has issued the final rule implementing the reporting requirements.
I. Purpose
The CTA is to protect the United States financial system from being used for money laundering and other illicit activities. Its main purpose is to prevent people who are engaged in illegal activities from doing it through LLCs, corporations and other similar entities so that law enforcement finds out individuals behind these entities.
II. Reporting Companies
The rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Under the rule, and in keeping with the CTA, twenty-three types of entities are exempt from the definition of “reporting company.”
FinCEN expects that these definitions mean that reporting companies will include (subject to the applicability of specific exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office.
Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that in many states the creation of most trusts typically does not involve the filing of such a formation document.
III. Beneficial Owners
Under the rule, a beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines the terms “substantial control” and “ownership interest.” In keeping with the CTA, the rule exempts five types of individuals from the definition of “beneficial owner.”
In defining the contours of who has substantial control, the rule sets forth a range of activities that could constitute substantial control of a reporting company. This list captures anyone who is able to make important decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking anonymous shell companies.
The rule provides standards and mechanisms for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. Among other things, these standards and mechanisms address how a reporting company should handle a situation in which ownership interests are held in trust.
These definitions have been drafted to account for the various ownership or control structures reporting companies may adopt. However, for reporting companies that have simple organizational structures it should be a straightforward process to identify and report their beneficial owners. FinCEN expects the majority of reporting companies will have simple ownership structures.
IV. Company Applicants
The rule defines a company applicant to be only two persons:
the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
The rule, however, does not require reporting companies existing or registered at the time of the effective date of the rule to identify and report on their company applicants. In addition, reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information.
V. Information Required to Report
“Reporting companies”
Full legal name
Current address of the principal place of business
Jurisdiction of formation
Taxpayer identification number
If not reported in a timely manner, it may be subject to a $10,000 penalty.
“Beneficial Owners” and “Applicants”
Full legal name
Date of birth
Unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license,
If the individual has none of those, a foreign passport
An image of the document from which the unique identifying number was obtained
VI. Reporting Due Date
Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.
Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.
VII. Penalties for Violating the CTA
Any person who provides false information or fails to comply with reporting requirements is liable for civil penalties of no more than US$500 for each day that the violation continues. Violators are also subject to criminal penalties of imprisonment of up to two years and fines of up to US$10,000.
In order to submit the CTA report, we need a copy of photo ID for all beneficial owners and company applicants. Either driver license or first page of passport shall be proper. Please take a picture of the available ID for all subjected personnel and send it to us and we will process it in a timely manner.
If you have any questions, please feel comfortable contact me on phone number 425.967.7176.
