By Jenifer S. Schembri, Esq., Matthew J. Lapointe, Esq., and Michael R. Huckle, Esq.
On September 29, 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued its final rule on the reporting requirements of beneficial ownership information under the Corporate Transparency Act (the “CTA”).[1]
The final rule requires certain entities to report the names and other information concerning their beneficial owners with FinCEN. The CTA and the final rule are “intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.” The final rule became effective on January 1, 2024.
Who Must Report
A “reporting company” is defined as any entity that is (i) a U.S. 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, and (ii) a non-U.S. corporation, LLC, or other entity that is registered to do business in the U.S.
Entities Exempt from Reporting The CTA and the final rule have listed several exemptions to the definition of a reporting company, including certain financial institutions and issuers of securities, tax exempt entities and entities assisting tax-exempt entities, and certain trusts. Additionally, there is an exemption for large operating companies that (i) employ 20 or more full-time U.S. employees, (ii) have more than $5 million in gross receipts, and (ii) have a physical operating presence in the U.S. Furthermore, there are exemptions for certain subsidiaries that are controlled or wholly owned, directly or indirectly, by one or more exempt entities.
When to Report
A reporting company created or registered after January 1, 2024, must file a report with FinCEN within 90 days of receiving actual notice of its creation or registration.
A reporting company existing before January 1, 2024, must file a report with FinCEN by January 1, 2025.
What is Reported
• Company Applicant This applies to the person forming an entity on or after January 1, 2024, and the information required includes the person’s legal name, date of birth, home address and driver’s license or other legal identification.
• Reporting Company The information required includes the entity’s legal name and all “DBAs”, street address (not a PO Box or advisor’s address), state of formation, EIN, and articles of incorporation or other formation document.
• Beneficial Owner Information A beneficial owner is a holder of 25% or more of the business or someone who has the ability to exert substantial control over the business, i.e. a senior manager. For each beneficial owner, the information required includes the person’s legal name, date of birth, home address and driver’s license or other legal identification.
On-Going Reporting Obligations
In addition to the initial reporting, once an entity is reported to FinCEN, there are ongoing reporting requirements, which include:
• Changes to addresses (including entity addresses, home address of beneficial owners, or renewal of driver’s license information) must be reported within 30 days to FinCEN
In the case of an updated driver’s license, the beneficial owner must also provide an updated picture of the new license.
• Changes of beneficial ownership must be reported within 30 days to FinCEN
• If an owner dies, there must be a change of ownership reported within 30 days to FinCEN
Key Takeaways
FinCEN estimates that there will be approximately 32.6 million reporting companies in the first year of its implementation, including small businesses. As a result, it is imperative that business owners familiarize themselves with the reporting requirements, so they do not violate the CTA. Violations of the CTA can lead to civil and criminal penalties, including a $500 per day penalty, without a maximum cap on these penalties.
If you need assistance with these new compliance requirements, please contact a member of our Corporate Department at 941-748.0100 or visit www.blalockwalters.com.
[1] Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (Sept. 30, 2022).
