In 2022, the Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the beneficial ownership information requirements of the Corporate Transparency Act (CTA). The CTA introduces standardized reporting obligations applicable to specific types of corporations, limited liability companies, and similar entities operating or registered in the United States.
These filing requirements are effective January 1, 2024 and are applicable to new and existing domestic and foreign reporting companies.
Who must file?
A reporting company, which includes a domestic or foreign company, is defined as follows:
A domestic reporting company is —
- a corporation,
- a limited liability company, or
- any other 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, limited liability company, or other entity formed under the law of a foreign country, AND
- registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.
Are there any exemptions from this filing requirement?
Yes. See below for the most major exemptions:
- Certain types of securities reporting issuers
- Certain types of banks
- Insurance companies
- Certain types of tax-exempt entities
- Subs of certain exempt entities
- Large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States
- Inactive entities that existed before January 1, 2020, are not engaged in active business, are not owned by a foreign person, have not had a change in ownership in the last 12 months, have not sent or received funds greater than $1,000 in the last 12 months, and do not hold any assets
What is the purpose of this filing?
The purpose of the beneficial ownership information reporting is to disclose information on the company, its beneficial owners, and its company applicant.
A beneficial owner is any individual —
- who directly or indirectly exercises “substantial control” over the reporting company, or
- who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
Per FinCEN, “Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over, important decisions the reporting company makes. In addition, any senior officer is deemed to have substantial control over a reporting company.”
A company applicant is any individual —
- who directly files the document that creates, or first registers, the reporting company; and
- that is primarily responsible for directing or controlling the filing of the relevant document
A company applicant does not need to be reported for an entity that was formed or registered prior to January 1, 2024. Only reporting companies formed or registered on or after January 1, 2024 have to report the company applicants.
When is this reporting due?
A reporting company created or registered to do business before January 1, 2024 will have until January 1, 2025 to file its initial beneficial ownership information report.
A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report.
What information will need to be reported?
Reporting Entity’s Information:
- Legal name of the entity (any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names)
- Current address
- Jurisdiction of formation or registration of the entity; and
- Taxpayer identification number
Individual Beneficial Owners and Company Applicant’s Information:
- Name of individual
- Date of birth
- Residential street address
- Unique identifying number from an acceptable identification document (FinCEN has a list of these acceptable documents)
- Name of the state or jurisdiction that issued the identification document; and
- Image of the identification document being used
How will this information be reported?
This report will be filed electronically via a secure filing system available on the FinCEN’s website. It is not yet available as it is still being developed.
After the initial reporting, will there be additional reporting requirements?
Yes. Reporting companies will have 30 days to report any changes or corrections to their previously filed reports.
Under CTA, FinCEN is empowered to gather this information and share it with authorized government entities and financial institutions, while ensuring robust safeguards and controls are in place.
Businesses should embrace beneficial ownership reporting as an opportunity to strengthen their operations and contribute to a more transparent and secure business environment.
We are here to help, guide you, and gather the necessary information in preparation of this filing requirement.
Please feel free to contact us at info@gratuscpa.com or 954-998-1190 with any questions, concerns, or comments.
