Effective January 1, 2024, the Financial Crimes Enforcement Network’s (FinCEN’s) final rule under the Corporate Transparency Act (CTA) will require certain companies to file a report with FinCEN. The final rule applies to most corporations, limited liability companies, and other entities (including domestic and foreign entities) created in or registered to do business in the United States and requires these reporting companies to file reports with FinCEN identifying each “beneficial owner” and “company applicant.” The final rule also sets forth 23 exemptions to the definition of reporting company, which includes a general exemption for a “large operating company,” which is generally any entity that (i) employs more than 20 full-time employees in the US, (ii) has more than $5 million in gross receipts or sales in the US, and (iii) has an operating presence at a physical office within the US. Exempt entities are not required to make any filing to claim an exemption; however, if a reporting company becomes an exempt entity after filing an initial report with FinCEN, that change would require the filing of an updated report. See our previous January 2023 CTA alert for reference.

Who is a beneficial owner?

A “beneficial owner” includes “any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least twenty-five (25) percent of the ownership interests of a reporting company.” The CTA requires the identification of each beneficial owner of the respective reporting company. The definition of “beneficial owner” does not include 1) minor children; 2) individuals acting as nominees, intermediaries, custodians, or agents; 3) employees acting solely as employees and not as senior officers; 4) individuals whose only interest in a reporting company is a future interest through a right of inheritance; and 5) creditors of a reporting company.

What is an ownership interest in a reporting company?

The final rule establishes standards for determining whether an individual has an ownership interest in a reporting company. An “ownership interest” is defined as any instrument, contract, arrangement, understanding, or mechanism used to establish ownership, such as any equity, stock, capital, or profit interest. An individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, or relationship, including, for example, acting through an intermediary, custodian, or agent on behalf of another or certain trust arrangements.

Who are company applicants?

The final rule requires the identification of company applicants who are primarily responsible for directing or controlling the filing of the formation documents for the reporting company. The “company applicant” is either 1) the individual who directly files the document that creates the entity, or, in the case of a foreign reporting company, the document that first registers the entity to do business within the US, or 2) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

When must a company file?

Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports with FinCEN. Entities created or registered after January 1, 2024 will now have 90 days to file their initial reports. Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

Are there any penalties for non-compliance?

Failure to file, timely correct/update a report, or to willfully provide incomplete or false beneficial ownership information, may result in civil or criminal penalties.

The Treasury Department’s final rule is here, the Treasury Statement from September 29, 2022 is here, the Treasury fact sheet regarding the final rule is here, and the FinCEN FAQs are here.

[View source.]