The Corporate Transparency Act (“CTA”) takes effect as of January 1, 2024. This broad sweeping Federal Act is part of the Anti-Money Laundering Act of 2020 and will require many entities (“reporting companies”), not previously subject to reporting requirements, to now disclose certain direct and indirect beneficial owners, down to the individual level, along with additional related information. Failure to make such disclosures can result in civil and criminal penalties. The reporting deadlines are as follows:
- Reporting companies created or first registered to do business in 2024 will have 90 calendar days to report such information to the Financial Crimes Enforcement Network of the U.S. Department of Treasury (“FinCEN”).
- Reporting companies created or registered to do business on or after January 1, 2025 will have 30 calendar days to report such information to FinCEN.
- Reporting companies created or registered to do business prior to January 1, 2024 will have until January 1, 2025, to report such information to FinCEN.
While there are currently 23 exemptions to the Beneficial Ownership Information Reporting Rule (“BOI Reporting Rule”), many apply to highly regulated businesses that are subject to existing reporting obligations of the Federal government. As a result, the burdens of the CTA will fall more often on smaller entities. So-called “holding companies” will likely fail to satisfy the large operating company exemption, even if affiliated with an entity that qualifies for the large operating company exemption.
In light of the potential civil and criminal penalties, it is imperative that our clients with U.S. and foreign entities that are registered with a Secretary of State or any similar office take the BOI Reporting Rule seriously. It is critical to determine whether or not an entity qualifies as a reporting company and, if so, prepare for compliance with the reporting requirements to avoid the authorized FinCEN penalties.
The State of New York is expected to enact similar legislation in the near future. If enacted into law, the New York LLC Transparency Act (“NYLTA”) will require that beneficial ownership reporting be done at the time of creating or first registering an entity with the State for those entities formed after the effective date of the NYLTA, while pre-existing entities (or previously registered entities) will have until January 1, 2025, to report such information. Unlike the CTA, which applies to various business entities, including corporations and LLPs, the NYLTA applies only to LLCs. Furthermore, the NYLTA would establish a public database containing the names of beneficial owners and their business addresses, whereas the information provided to FinCEN under the CTA would remain confidential to the public, accessible only in limited circumstances.
Rosenberg & Estic, P.C. has established the expertise to help guide its clients through the CTA’s complex reporting requirements for both newly formed and pre-existing reporting companies.
If you would like to discuss these reporting requirements or have any questions, please feel free to contact your trusted Rosenberg & Estis, P.C. attorney or William R. Byers, Member of the firm’s Transactional Department, who authored the above.