Fabio Giallanza of Weiss Serota Helfman Cole + Bierman. Courtesy photo

Overview

The Corporate Transparency Act (the CTA, Title LXIV of the National Defense Authorization Act for Fiscal Year 2021) was enacted in 2021 in an effort to prevent the use of U.S. business entities for illicit purposes. The CTA notably introduced the requirement that reporting companies disclose their beneficial owner information (BOI), part of a growing international trend toward corporate transparency and accountability. According to the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN), the CTA will officially come into effect on Jan. 1, 2024, requiring reporting companies, such as corporations and limited liability companies, to submit reports including the identities of their beneficial owners.

Where We Are

With three short months left before the CTA is set to go into effect, existing reporting companies should begin making plans on assembling their reports and possibly seeking guidance from their legal advisers. For companies formed prior to 2024, reporting is currently due one year from the effective date, or by Jan. 1, 2025. However, FinCEN recently proposed a regulation to extend the deadline for companies created after Jan. 1, 2024, and before Jan. 1, 2025. This extension would give those new corporations 90 days (originally 30 days) to submit their initial BOI reports. This proposed extension is meant to give these newly formed corporations time to understand the filing obligations and compile the documents necessary to meet the filing requirements. Please note, however, that companies formed on or after Jan. 1, 2025 will need to adhere to the original 30-day time frame.

For guidance, FinCEN recently released a small entity compliance guide (guide) in September that clarifies various points such as which companies are considered "reporting companies;"  which companies are exempt from reporting. Currently, there are 23 types of entities that are exempt from reporting; (For example, banks, credit unions, and tax-exempt entities. See the Small Entity Compliance Guide to view the full list); who exactly qualifies as a beneficial owner; which companies are also required to report their company applicants; and what would happen if a company previously reported inaccurate information. Reporting companies are also responsible for updating and correcting information previously filed. The guide provides a comprehensive step-by-step approach to the CTA's reporting requirements and provides useful visuals answering a wide array of commonly asked questions. Moreover, as of Sept. 29, FinCEN updated its FAQs to address crucial questions, such as how to report through multiple exempt entities, how companies can request their FinCEN identification numbers (although this is not a requirement), how companies should report when unaffiliated companies provide services to a reporting company, and how third-party professional services to reporting companies will not be considered BOIs unless the individuals in question are not regarded as senior officers with substantial control.