Beginning January 1, 2024, the newly effective Corporate Transparency Act (the “CTA”) will require all “reporting companies” to disclose information relating to their beneficial owners to the U.S. Treasury’s Financial Crimes and Enforcement Network (“FinCEN”). The requirement comes from the federal adoption of the CTA in light of the lack of a central database that holds information relating to beneficial ownership of entities in the United States.
The CTA will require all entities, whether existing now or created hereafter, to either (1) disclose certain information regarding the entity’s beneficial owners or (2) verify an exception to the reporting requirement applies to the entity.
The CTA applies to all entities, both foreign (non-U.S. based) and domestic, who do business within the United States. An entity that falls within the CTA is considered a “reporting entity”, generally any entity that is required to register to do business within the U.S. by filing a document with a secretary of state or similar office. There are broad exceptions to entities that are considered “reporting entities”, the Act expressly provides 23 listed exemptions. Among there are large operating companies, non-profit entities, public companies, banks, registered investment companies, and subsidiaries wholly owned by other CTA exempt entities. Many of these exceptions consider entities in industries with significant existing regulatory oversight.
Nonexempt entities, existing prior to Jan 1, 2024, are required to provide their initial report on the FinCEN central database no later than January 1, 2025. Entities that are created after January 1, 2024 must provide the reporting information within 30 days of their registration to do business within any state. The information nonexempt entities will be required to share includes any individual (or entity) who holds over 25% ownership or any individual (or entity) who exerts “substantial control” over the entity. This information is required to be provided to the FinCEN database created for the CTA, which becomes live on January 1, 2024. This information will then be provided to federal and state law enforcement agencies upon specified circumstances, or may be provided with the entity’s consent. The information reported under the CTA will not be publicly available.
Penalties for non-compliance include both civil and criminal penalties, which increase the longer the entity is noncompliant. Senior officers may be personally responsible for any non-compliance, as well as any individual who personally caused the non-compliance.
As the time for compliance is arriving, businesses must be aware of the CTA and how it might affect their business. Our skilled team of business attorneys at OVB Law & Consulting, S.C. can help you navigate this new law and ensure you are not earning civil and possibly criminal penalties for non-compliance. Contact us today to schedule a consult if you have concerns about the CTA or any of the rights and obligations thereunder.
