The Corporate Transparency Act
The Corporate Transparency Act, which goes into effect Jan 1, 2024, requires certain domestic and foreign companies to disclose information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who ultimately own or control the entity.
By requiring ownership transparency, the government aims to prevent the misuse of anonymous shell companies for illicit activities like money laundering and terrorism financing. According to the FinCEN website, the regulations “will provide essential information to law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States.”
What type of company is required to report under the new rule?
A company that was created by filing a document with a state’s secretary of state or similar office is considered a “reporting company.” In NC, for example, general partnerships, sole proprietors, and trusts typically are not required to file with the secretary of state.
Are any types of companies exempt?
The 23 category exceptions outlined in the rule include many financial services firms, accounting firms, publicly held companies, public utilities, charities and political organizations, or “large operating companies” that have a) more than 20 fulltime U.S.-based employees, b) more than $5 million in U.S.-sourced gross revenue, and c) an operating presence at a physical office in the U.S.
Who is considered a beneficial owner?
He or she, “directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests” of the company. Certain individuals – some minors, for example – are exempt.
What information must be reported?
For each beneficial owner: full legal name, date of birth, residential address, and a unique ID number and document image, such as from a passport or driver’s license.
Information about the company: legal name and any trade name or DBA, address, jurisdiction in which it was formed or first registered, and Taxpayer Identification Number.
When does this rule take effect?
A reporting company that exists prior to the rule’s effective date of Jan 1, 2024, must file an initial report before Jan 1, 2025. Reporting companies that are created after Jan 1, 2024, have 30 days from the date of formation to file an initial report, and those companies must also report personal identifying information for the new company’s applicant. There are timelines in the rule for updating report information or changing inaccurate reports.
What happens if my company is required but fails to report?
Non-compliance can result in significant civil and criminal penalties, up to $10,000 and two years in prison. To prepare for compliance with the rule, you should review and revise your internal policies to ensure that you maintain up-to-date information and put procedures in place to report changes on time to avoid penalties.
Have questions? Please contact your BRC representative.
For more information, see https://www.fincen.gov/boi
The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic. Please consult with your advisor to determine how this information applies to your specific facts and circumstances.