New Federal Reporting Requirements for Entities

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Historically, very few disclosures have been required when forming or qualifying entities to do business in the U.S.  However, the U.S. Congress recently concluded that the lack of available information regarding the beneficial ownership of entities has potentially facilitated terrorism, drug trafficking, money laundering and other criminal activity.  In an effort to limit the ability of criminals to use entities to evade culpability, Congress passed the Corporate Transparency Act (the “Act”). 

The Act requires any corporation, limited liability company or other similar entity that is created by the filing of a document with, or which is formed under the law of a foreign jurisdiction and registered to do business in the U.S. with, a secretary of state or similar office of a State or Indian Tribe (a “Reporting Company”) to file a report with the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of the Treasury.  However, this requirement does not apply to certain regulated entities, including banks, credit unions, publicly traded companies, governmental entities, insurance companies, securities brokers, public utilities and others, including certain investment advisors, venture capital fund advisors, tax exempt entities and large operating companies, all of which have been exempted from these reporting requirements and, therefore, are not categorized as “Reporting Companies”.  

Any Reporting Company which is created (or qualified to do business) in the U.S. on or after January 1, 2024, is required to file this report within 30 days thereafter.  Any Reporting Company which is created (or qualified to do business) in the U.S. prior to January 1, 2024, is required to file this report no later than January 1, 2025.  After filing an initial report, each Reporting Company is required to file an updated report with FinCEN within 30 days following the occurrence of any change in the previously reported information.  

The information which each Reporting Company is required to report to FinCEN includes:

  • its name and any DBA’s it uses,
  • its address,
  • the jurisdiction where it was formed,
  • its Employer Identification Number (EIN), and
  • the identity of each and every individual who, directly or indirectly, has substantial control over such company or owns or controls at least 25% of the ownership interests in such company (provided that, if it’s not possible to calculate each individual’s share of the capital and profits of such company, then each individual who directly or indirectly owns or controls 25% or more of any class or type of ownership interest in such company will be deemed to own or control 25% of the ownership interests in such company) (such individuals are designated the “Beneficial Owners”); provided, further, that a Reporting Company’s creditors, its employees (acting solely in their capacity as employees) and a few others are expressly excluded from being treated as Beneficial Owners by the Act.

Each Reporting Company is also required to report a variety of information regarding each and every one of its Beneficial Owners, including their name, date of birth, current address, and passport, driver’s license or other governmental identification document number along with an image of such document.  Each Reporting Company which is first formed or first qualified (in the case of a foreign entity) on or after January 1, 2024, is also required to report similar information with respect to the individual who directly files the document that creates or qualifies such Reporting Company in the U.S. and, if different, the individual who is primarily responsible for directing or controlling such filing.

Willful violation of the Act can result in fines of not more than $10,000, imprisonment for not more than 2 years, or both, as well as civil penalties of up to $500 for each day that a violation continues or has not been remedied.

Needless to say, the Act creates extensive reporting requirements that have never previously existed.  These requirements impact all Reporting Companies regardless of whether they presently exist or are created in the future.  As the reporting deadlines approach, we will be implementing procedures to assist our clients in complying with the Act with respect to all new entities that we form.  We are also available to provide you with guidance regarding the specific requirements of the Act and to assist you with bringing all of your existing entities into compliance with the Act. 

Please note, the information contained in this bulletin is simply a summary and does not address all of the detailed and nuanced requirements of the Act.  As such, we strongly recommend that you contact us or other legal counsel to assist you in interpreting how the Act impacts your business and entities, determining whether any of your entities are exempt from its requirements, and completing the required reports. 

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