The Corporate Transparency Act: Beneficial Ownership Reporting Deadline Approaches

The deadline is quickly approaching for companies created or registered to do business in the United States before 2024 to report beneficial ownership information as required by the Corporate Transparency Act (CTA). The CTA seeks to combat money laundering and other financial crimes by requiring reporting companies to disclose individuals with key ownership stakes and substantial control to the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury Department.

Filing deadlines vary depending on a company’s formation date.

Who must file? Domestic and foreign companies created or registered to do business in the United States by the filing of a document with a secretary of state or similar office must file unless exempt. 

Who is exempt? There are 23 exemptions from the reporting requirements.  Most companies subject to significant state or federal regulation do not have to submit reports.  Exempt companies include:

• “Securities reporting issuers” registered with the Securities and Exchange Commission (SEC).
• Certain financial institutions, including banks, bank holding companies, insurance companies, FinCEN-registered money services businesses, SEC-registered broker-dealers and SEC-registered exchange or clearing agencies.
• Certain pooled investment vehicles.
• Registered investment companies and advisers.
• Registered venture capital fund advisers.
• “Large operating companies” that have:
• An operating presence at a physical office in the U.S.
• More than 20 full-time U.S. employees.
• At least $5 million in gross receipts or sales in the prior year (as reported on a filed tax return).  
• Entities that are wholly owned or entirely controlled by one or more of certain types of exempt entities.

Beneficial ownership information reports must include information about the company, its “beneficial owners,” and, for companies created or registered in 2024, “company applicants.”

Beneficial owners are individuals who:

• Own or control at least 25 percent of the ownership interests, including equity, stock, voting rights, capital or profit interest, convertible instruments, options and any other instrument used to establish ownership, and/or
• Exercise “substantial control,” including senior officers, individuals with authority to appoint or remove certain officers or a majority of directors, important decision-makers and individuals with any other form of substantial control over the company. 

Company applicants are individuals (at most, two) who:

• Directly file the document that created the company or registered it to do business in the United States.
• Are primarily responsible for directing or controlling the filing of the formation or registration document.

Requirement to update: Reporting companies must update reports to reflect changes to previously reported information within 30 days of the change. (Companies do not have to report changes relating to company applicants.)  If a reporting company becomes exempt after reporting, it should file an update to indicate its new status. 

To comply with the CTA, companies should:

• Identify all potential reporting companies in their corporate groups.  

• Each company, unless exempt, must submit its own report.
• Entities dissolved prior to 2024 do not need to report.  However, a company that existed at any point in 2024 must file even if it dissolved prior to its reporting deadline. 
• Entities that converted from one type of entity to another (e.g., an LLC to a corporation) may need to report if the conversion results in a “new” domestic reporting company. 

• Consider if any exemptions apply. 
• If the company is not exempt, identify beneficial owners and, if applicable, company applicants.
• Gather information about the reporting companies and beneficial owners – and, for companies formed on or after January 1, 2024, company applicants. 

• Instead of including personal identifying information of beneficial owners and company applicants, a reporting company can include their “FinCEN identifiers” – unique numbers FinCEN issues upon request.
• Allocate time for outreach to third-party beneficial owners, such as investors, managers and other decision-makers, to collect information to file on time.

• Prepare and submit the beneficial ownership information reports to FinCEN by the relevant deadline.
• Establish internal processes to ensure timely updates to beneficial ownership information. 

Willful failure to comply can result in civil and criminal penalties.  Individuals and entities can be held liable for willful violations, including those who file false information or fail to provide complete or file the required reports. 

LEARN MORE

Read more about the CTA here and here.  

Try Orrick’s CTA Beneficial Ownership Reporting Tool for an initial analysis of reporting obligations. 

Want to know more? Ask one of the authors.