New Reporting Requirements for Certain Corporations, LLCs, and Other Entities - Corporate & Business Law Client Alert

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1.8.24

Effective January 1, 2024, many existing and most newly created corporations, limited liability companies, and other business entities will need to report information about the individuals who directly or indirectly own or control the company. Some of the information is much more sensitive than was previously required. These new filing and disclosure requirements arise under the new Corporate Transparency Act (the “CTA”) and will be submitted to the Financial Crimes Enforcement Network (“FinCen”) of the US Treasury Department. This new law will likely impact most small to mid-size businesses, and failure to comply could result in civil and criminal penalties. 

What entities are covered by the new law?

Companies that will be required to comply with the CTA’s filing requirements are: (i) domestic companies structured as corporations, limited liability companies, limited liability partnerships, and other entities that were or are created by filing a document with the Secretary of State or other similar office; and (ii) foreign entities that have registered to do business in the United States by filing a document with the Secretary of State or other similar office. The law also applies to certain trusts, foundations, and not-for-profit organizations.

The CTA does exempt certain companies that satisfy qualifying criteria set out in the new law. The categories of exemptions are:

Exemption No.	Exemption Short Title
1	Securities reporting issuer
2	Governmental authority
3	Bank
4	Credit union
5	Depository institution holding company
6	Money services business
7	Broker or dealer in securities
8	Securities exchange or clearing agency
9	Other Exchange Act registered entity
10	Investment company or investment adviser
11	Venture capital fund adviser
12	Insurance company
13	State-licensed insurance producer
14	Commodity Exchange Act registered entity
15	Accounting firm
16	Public Utility
17	Financial market utility
18	Pooled investment vehicle
19	Tax-exempt entity
20	Entity assisting a tax-exempt entity
21	Large operating company
22	Subsidiary of certain exempt entities
23	Inactive entity

Anyone seeking to have their company rely on an exemption must carefully analyze the terms of the exemption to ensure it is able to secure that exemption.

What information will need to be reported?

Information about the company and its "beneficial owners":

(i) Information about the company, which includes the company’s legal name, trade name(s), address of its principal place of business (which may not be a P.O. box), jurisdiction of formation or registration, and its tax identification number.

(ii) Information about each individual who is a beneficial owner, which includes the individual’s name, date of birth, residential address, and the identification number from the person’s identifying documents (e.g., passport, U.S. driver’s license), a copy of which document must also be submitted to FinCen. 

Who is considered a “beneficial owner”?

A reporting company’s "beneficial owner" is any individual who either:

(i) owns or controls at least 25% of the company’s ownership interests (the “Ownership Test”); or

(ii) exercises substantial control over the company (the “Substantial Control Test”). 

Under the Ownership Test, equity, stock, voting rights, profit interests, and other economic rights are considered. Under the Substantial Control Test, substantial control can be exercised by an individual if (s)he: (1) is a senior officer such as the President, General Counsel, CEO, CFO, COO; (2) has authority to appoint or remove certain officers or a majority of directors; (3) is an important decision maker; or (4) has any other form of substantial control over the company. Whether an individual is a beneficial owner because they exercise substantial control will depend on the facts and circumstances of the person’s position and relationship with the company. 

It is important to note that there are limited exceptions for certain instances where an individual would not be considered to be a beneficial owner. There may also be reporting requirements applicable to non-individual owners.

What are the timing requirements?

• Each entity created or registered before January 1, 2024, must file before January 1, 2025.
• Each entity created or registered on or after January 1, 2024, but before January 1, 2025, must report within 90 calendar days after the earlier of the date it receives notice of its formation or registration from the Secretary of State (or similar office) or the date of public notice of its creation or registration.
• Each entity created or registered on or after January 1, 2025, must file within 30 calendar days from the date of its actual or public notice of creation or registration.

Where to report?

The filing is made generally through FinCen’s E-Filing system, which can be accessed by clicking here.

What should you do now?

1. Determine whether your company is a reporting company. 
2. If so, identify the company’s beneficial owners.
3. For each beneficial owner, collect the information about the person required to be disclosed.
4. Apply for access to FinCen’s E-Filing system.
5. Prepare for filing.

Our corporate attorneys are closely monitoring developments under this new law and remain available to assist with any questions.