Starting on January 1, 2024, the Corporate Transparency Act (CTA) requires both US and foreign entities doing business in the United States to comply with new reporting rules. The CTA aims to combat money laundering and illicit activities by necessitating “Reporting Companies” to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This includes providing details about individuals with substantial control over the company or those owning/controlling at least 25% of the company’s interests.
Reporting is required for existing companies by January 1, 2025, and for those formed on or after January 1, 2024, within 90 days of filing (though this will change to 30 days for entities filed on or after January 1, 2025). There are exemptions for certain entities, but tiered structures may complicate compliance. Beneficial owners are individuals with substantial control or ownership interests, with specific criteria outlined in the regulations.
The reporting includes information about the Reporting Company itself, its beneficial owners, and Company Applicants. FinCEN Identifier, a unique number issued by FinCEN, can be used instead of Beneficial Ownership Information (BOI) for reporting, but updates are required for any changes. Access to BOI is granted to federal agencies and, with consent, to financial institutions for customer due diligence.
The Beneficial Ownership Secure System (BOSS) will receive and store BOI, starting January 1, 2024. Violations of reporting requirements or unauthorized disclosure of BOI may lead to civil or criminal penalties.
Exercising Substantial Control
Substantial control generally means control over important decisions of the Reporting Company. Under the regulations, an individual exercises substantial control over a Reporting Company if the individual:
- Serves as a senior officer of the Reporting Company, defined as a CEO, CFO, COO, and general counsel, or any other officer who performs a similar function (the roles of secretary and treasurer are excluded because their functions are viewed as ministerial, with little control over the company);
- Has authority over the appointment or removal of any senior officer or a majority of the board of directors;
- Directs, determines, or has substantial influence over important decisions made by the Reporting Company (such decisions include those addressing the nature, scope, and attributes of the business, including the sale, lease, mortgage, or other transfer of any principal assets of the Reporting Company; the reorganization, dissolution, or merger of the Reporting Company; and major expenditures or investments, issuances of any equity, the incurrence of any significant debt, or approval of the operating budget of the Reporting Company among others); or
- Has any other form of substantial control over the Reporting Company
Entities need to establish processes for gathering, storing, and reporting BOI. Compliance involves ongoing monitoring of operations and ownership changes. Non-compliance may result in penalties for Reporting Companies. The CTA’s application is evolving, with recent legislative developments, and entities should stay informed about further changes in regulations.
Information to be Reported
The Reporting Company will be required to provide identification information about itself, its beneficial owners, and Company Applicants. Information required about the Reporting Company itself includes:
- The full legal name and any trade name or “doing business as” name of the Reporting Company;
- A complete current address;
- The State, Tribal, or foreign jurisdiction of formation or registration of the Reporting Company; and
- The IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) of the Reporting Company.
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Oberman Law Firm represents clients in a wide range of practice areas, including private equity, M&A, healthcare, corporate transactions, intellectual property, data privacy and security, regulatory compliance and governance, cross-border transactions, labor and employment, construction law, litigation, private clients’ services, corporate restructuring, and white-collar and governmental disputes.
As a firm, we offer the highest quality legal advice coupled with extraordinary and tailored service to deliver exceptional results to our clients. Our philosophy is to invest deeply in the brightest legal talent and build dynamic teams that operate at the pinnacle of respective practice areas. We believe in empowering our attorneys, encouraging entrepreneurialism, operating ethically and with integrity, and collaborating to bring the very best to every client engagement. These principles have guided us in building extraordinary and successful long-term partnerships with our clients.
