Corporate Transparency Act

CORPORATE TRANSPARENCY ACT

The Corporate Transparency Act (“CTA”) became effective on January 1, 2024. The CTA is an attempt by the U.S. Congress to bolster national security and combat money laundering and other illicit activities. Under the CTA, all newly created non-exempt entities that are created by filing with a  secretary of state or other state filing authority (corporations, limited liability companies, limited partnerships and certain trusts) are required to report the beneficial ownership of the entity to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) within 90 days of formation. All non-exempt entities formed PRIOR TO January 1, 2024, have until the end of 2024 to file a report of beneficial ownership.

Any entity that is not exempt is called a “Reporting Company.” Each Reporting Company is responsible for filing a report providing information on itself and on the individuals (i.e., the human beings) who directly or indirectly control or own interests in the entity. These individuals are called the “Beneficial Owners.” The CTA also requires that newly formed (AFTER January 1, 2024) non-exempt entities must also report the personal identifying information of individuals who file for the formation of the entity (“company applicants”).

The Act provides 23 exemptions to FinCEN'S reporting requirements and are focused on entities that are:

• highly regulated by a government body (SEC, CFTC, OCC, FINRA, insurance, utilities),
• tax-exempt (a 501(c)(3), 501(c)(4) organization), or
• large (e., 20 or more full-time employees plus $5,000,000 of annual revenue) or public companies.

FinCEN is creating an online database for Reporting Companies to file their report. Within the report, the Reporting Company must provide its full legal name, all trade names or “doing business as” names, its EIN or other tax identifier, state of formation and current U.S. business address. The report must list the full names of all Beneficial Owners, a unique identifying number from an acceptable identification document (e.g., passport, driver’s license or other government-issued identification document) for each Beneficial Owner, an image of the non-expired governmental identification that supplies such unique identifying number, and residential address, subject to a few exceptions.  If the Reporting Company is newly formed, it must also provide the same identifying information for any company applicants. For Beneficial Owners who do not wish to provide this information to the Reporting Company, they can provide their personal information directly to FinCEN and receive a unique number, referred to as a FinCEN identifying number. The Beneficial Owner can then provide just that FinCEN identifying number to the Reporting Company, who can then include that in the report.

Aside from the initial report, the Reporting Company must update the report within 30 days if any of the information in a report changes, including a change of address or updated ID for a Beneficial Owner.

A Beneficial Owner, whose information needs to be disclosed in the report, is any person (human being) who either:

-      directly or indirectly owns or controls 25% or more of the ownership interests in the Reporting Company (“Ownership Test”) or

-      exercises substantial control over the Reporting Company (“Control Test”).

Ownership of a Reporting Company includes not just stock, memberships, or ownership units, but also indirect forms of ownership, such as convertible notes, puts, calls, and warrants. All of an individual’s direct or indirect ownership will be aggregated for purposes of determining whether he or she has an ownership interest of 25% or more.

For the Control Test, certain senior officers of a Reporting Company (such as CEO, President, general counsel) will automatically be treated as being Beneficial Owners. Individuals who serve on the Board of Directors or have a similar role in a Reporting Company may also be treated as Beneficial Owners depending on the scope of their authority.

Aside from individuals who hold certain key positions, owner(s) of a Reporting Company may be Beneficial Owners under the Control Test because of a right to make or participate in significant decisions, regardless of the percentage of ownership. For example, if an operating agreement for an entity requires unanimous consent (and therefore unanimous participation) of all owners for significant decisions regarding the entity, then an owner who owns less than 25% of the entity could be a Beneficial Owner under the Control Test, even though such person would not be a Beneficial Owner under the Ownership Test.

BWMS is ready to assist with determining whether your entity is a Reporting Company, whether any of the exemptions apply and which persons must be identified as Beneficial Owners of your company.  

In the near future we will be sending you more information detailing how you can file all required reports under the CTA if your entity is a Reporting Company and suggesting a service provider who can assist you with those filings.

The CTA is a complex law and thus this bulletin is not exhaustive. If you have any questions regarding the CTA, or if you would like further information concerning the matters discussed in this bulletin, please contact Doug Wambach (312-840-7019; dwambach@burkelaw.com) or the BWMS attorney with whom you regularly work.